T.C. Mem o. 2 01 6- 67

UNITED STAT ES TAX COURT
MARK ANDRES GREEN, Peti ti on er v . COMM ISSI ONER OF INTERNAL REVENUE, Resp on de nt

Doc ke t No . 47 15 -1 2. Fi le d Ap ril 14 , 20 16
.
Mark An dr es Green , pro se. Des saJ. Ba ke r-In m an , forres po nd en t.

MEMORANDUM FINDINGS OF FACT AND OPINION PARIS , Ju dg e: In two n ot ic es of d efi ci en cy da te d No ve m

be r 18 , 20 11 , res po nd en t d et erm in edFed eral in co m e ta x d efi ci en ci es , add it io ns to tax , anda ci vi l fr au d p en al ty, as fol lo ws:- 2 -

[* 2] Add it io ns to tax Ci vi l fr au d pe na lty Year Defi ci en cy Sec. 66 51 (a)( 2) 1 Sec.

66 51 (f) Sec.

66 54 (a) se c.

66 63 20 01 $4 3,7 90 $1 0,9 47 .50 $3 1,7 47 .75 $9 85 .63
--- 20 02 4,0 39
--- --- --- $3 ,02 9.2 5 20 03 12 ,14 9 1,61 9.7 5 4,6 97 .27 15 0.9 3
--- 20 04 3,3 42 62 1.0 0 1,8 00 .90
--- --- The am ou nt s o f an y

ad di ti on s t o t ax un de r se c. 66 51 (a)( 2) wil l b e 1 de te rm in edpu rs ua ntto sec . 66 51 (a)( 2) , (b) , and(c). Afte r co nc es si on s, th e is su es forde ci si on are wh ethe r: (1 ) pe ti ti on er fa il ed 1 to rep ort i nc om e fo r 20 01 , 20 03 , and20 04 ; (2 ) pe ti ti on er i s en ti tl edto a de du ct io n un de r se ct io ns 86 1 a nd13 41 for20 02 ; (3 ) pe ti ti on er i s l iabl e fo r ad di ti on s t o t ax 2
un de r se ct io n 6 65 1( f) fo r frau du le ntfai lu re t o fi le for20 01 , 20 03 , and20 04 ; (4 ) pe ti ti on er i s l iabl e fo r a ci vi l fr au d p en al ty und er s ect io n 6 66 3 fo r 20 02 ; (5 ) pe ti ti on er i s l iabl e fo r ad di ti on s t o t ax un de r se ct io n 6 65 1( a)(2 ) fo r fai lu re t o p ay fo r 20 01 , 20 03 , and20 04 ; (6 ) pe ti ti on er i s l iabl e fo r anad di ti on to tax un de r se ct io n 6 65 4 fo r fai lu re t o m ak e es ti m at edtax pa ym en ts for 20 01 ; (7 ) if

pe ti ti on er Res po nd en t co nc ed edth atpe ti ti on er i s n otli ab le for anad di ti on to tax 1 un de r se c. 66 54 for20 03
. Unl es s o th erwi se in di cat ed , all sec ti on refe ren ces are t o t he Int ern al 2 Rev enue Co de ineffe ctforth e y ears at i ss ue , andall Ru le refe ren ces are t o t he Tax Co urt Ru le s o f Prac ti ce an d P ro cedur e.- 3 -

[* 3] is no t l iabl e und er s ect io n 6 65 1( f), h e is li ab le forad di ti on s t o t ax un de r se ct io n 6 65 1( a)(1 ) fo r 20 01 , 20 03 , and20 04 ; an d (8 ) if pe ti ti on er i s n otli ab le
un de r se ct io n 6 66 3, h e is li ab le foranaccu racy-rela te d p en al ty und er s ect io n 66 62 (a) fo r 20 02
. FINDINGS OF FACT So m e o f th e fac ts were d eem edst ip ul at edun de r Ru le 91 (f) an d a re s o fo un d. Th e st ip ul at edfact s an d t he ex hi bi ts att ach edth eret o a re i nc or po rat ed he rei n b y th is refe ren ce. Pet it io ne r res id edinOkl ah om a atth e ti m e h is pe ti ti on was ti m el y

fil ed
. Dur in g t he y ears at i ss ue pe ti ti on er was m arri ed , hadth ree c hi ldren , andwas em pl oyed as a co ns tru ct io n m an ag er fo r Petro le um Mark et ers Equ ip m en t Co m pa ny of Tul sa , Inc . (PMEC)
. I. 20 01 Tax Yea r At the en d o f 20 01 PMEC i ss ue d t o p et it io ne r a Fo rm W -2 , W ag e an d Tax St at em en t (2 00 1 F orm

W -2 ). The 2 00 1 F orm

W -2 rep orte d wag es of $ 15 2,4 96 .72
an d wi th ho ld in g o f $4 ,98 4.8 0 fo r So ci al Secu rit y tax , $2 ,36 3.3 9 fo r Med ic are t ax , an d z ero for

Fed eral in co m e ta x. Al so in20 01 pe ti ti on er re cei ve d $ 20 7.5 9 o f
no ne m pl oyee co m

pe ns at io n fo r se rv ic es he pro vi de d t o a no th er en ti ty, whi chth e en ti ty repo rte d o n aFo rm 10 99 -MI SC, Mi sc el lane ou s In co m e.- 4 -

[* 4] Pet it io ne r di d n otfil e a 2 00 1 F orm 10 40 , U.S. Ind iv idua l In co m e Tax Return, b y

it s due da te or e xt en si on date in20 02 . In J anua ry 20 03 pe ti ti on er subm it te d aFo rm

10 40 X, Am en de d U.S. In di vi du al Inc om e Tax Return, fo r 20 01 (fi rs t 2 00 1 F orm

10 40 X). Peti ti on er rep orte d a dju st edgro ss in co m e (AGI) o f $1 52 ,70 5 b utdi d n otsp eci fy th e so ur ce o f hi s i nc om e (e.g ., whethe r itwas i nc om e fro m wage s, i nt eres t, d iv id en ds , etc .). He cla im edit em iz edde du ct io ns of $1 63 ,05 4 a ndex em

pt io ns of $ 5,3 00 , to to ta l ze ro tax ab le in co m e. Pet it io ne r al so rep orte d i nc om e ta x wi th ho ld in g o f $4 ,98 5 a ndcla im eda refu ndof $ 4,9 85 , an am ountequa l t o t he So ci al Securit y tax PMEC h adpre vi ou sl y withh el d, b utdi d
no t s pe ci fy

th e so ur ce fr om

whi chtax was wi th he ld
. Pet it io ne r subm it te d wi th hi s fi rs t 2 00 1 F orm 10 40 X a Sch edul e A, Ite m iz ed Deduc ti on s, an d S ch edul e C, Pro fitor Lo ss Fro m Bu si ne ss . On li ne 27 of Sch edul e A, Oth er Mi sc el lane ou s Deduc ti on s, p et it io ne r cl ai m eda $1 52 ,70 5 de du ct io n fo r wha t h e cal le d a“ cl ai m of R ig htfou nd edon USC 2 6, 1 34 1-
- co m pe ns at io n fo r pe rs on al lab or .” The “ cl ai m of r ig ht ” d educ ti on of $ 15 2,7 05
was equa l t o t he am ou ntof AGI p et it io ne r rep orte d o n h is fir st20 01 Fo rm 10 40 X. On Sc he du le C pe ti ti on er re po rte d g ro ss in co m e o f $5 15 an d a n o ffs et ti ng “ cl ai m of rig ht ” d educ ti on of $ 51 5. Pe ti ti on er al so subm it te d wi th hi s fi rs t 2 00 1 F orm 10 40 X an a ffi davi t, wh ic h, i n p art , st at ed :- 5 -

[* 5] 5) Affia nt s af

firm th atth e $ 15 2,7 05 .00 de du ct io n c la im edon li ne 27 of th e at ta ch edU.S. Ind iv idua l In co m e Tax Return F orm 10 40 Sch edul e A Ite m iz edDedu ct io n [s ic ] is a cl ai m of r ig htad

jus tm en t fo un de d o n USC Tit le 26 , § 1 34 1. 6) Affia nt s m ak e “ th e cl ai m of r ig ht ” is as [ si c] fol lo ws: a) The Affi an ts are cl ai m in g ana tu ral rig ht ; b ) th e n atur al rig htis a ri gh t t o m ak e a l iv in g; c) The am ou ntbe in g c la im edis a co m pe ns at io n fo r pe rs on al lab orth atwas re cei ve d a s re pa ym en t o f a d eb t tha t was owe d t o Aff

iant s; d) Th e d eb t o wedwas fo r pe rs on al lab orfurni sh ed by Affian ts ; 3 ) [s ic ] No p ro fitwas m ad e. 7) The l aw fo r th is cla im

is fou nd edin26 CFR 1 .86 1- 8( a)(5 )(i ) an d USC Tit le 26 § 1 34 1 * * * InSep te m

be r 20 05 pe ti ti on er s ub m itte d asec on d F orm 10 40 X for20 01 (s eco nd20 01 Fo rm

10 40 X). Peti ti on er rep orte d z ero AGI. In the “ Exp lana ti on of Ch an ge s t o In co m e, Deduc ti on s, an d C red it s” sec ti on of t he sec on d 2 00 1 F orm 10 40 X, pet it io ne r st at ed : “ 10 99 + W -2 Pay er m ad e anerro r co nc lu di ng I was an IRC 3 40 1( c) em

pl oyee an d e arn ed34 01 (a) wag es .” Pet it io ne r subm it te d wi th hi s se co nd20 01 Fo rm

10 40 X a se lf- pr ep aredFo rm 48 52 , Sub st itut e fo r Fo rm W -2 , W ag e an d Tax Sta te m en t, o r Fo rm 10 99 -R, Dis tri bu ti on s Fr om Pen si on s, Ann ui ti es , Ret ire m en t o r Pro fit -Sh ari ng Pla ns , IRAs, In su ran ce Co nt ract s, et c., (2 00 1 F orm

48 52 ), rep orti ng zero wage s. Th e 2 00 1 F orm 48 52 requi redpe ti ti on er to ex pl ai n h is effo rts to ob ta in a co rrec te d F orm W -2 ; p et it io ne r st at ed :- 6 -

[* 6] “ Reque st ed , bu t the co m pa ny refus es to is su e fo rm s co rrec tl y li st in g p aym en ts a[s ] wag es as d efi ne d i n 3 40 1( a) an d 3 12 1( a)”. Inco nt ras t t o t he am ount s re po rte d o n h is fir st20 01 Fo rm 10 40 X, onhi s se co nd20 01 Fo rm

10 40 X pet it io ne r rep orte d i nc om e ta x wi th ho ld in g o f $7 ,34 8.2 9, re su lt in g i n asec on d re fundcla im in crea se d t o $ 7,3 48 .29 , an a m ou nt refl ect in g t he So ci al Secu rit y tax an d M ed ic are t ax PMEC h adpre vi ou sl y withh el d. Res po nd en t d et erm in edth atne ithe r th e fi rs t 2 00 1 F orm 10 40 X no r th e se co nd20 01 Fo rm

10 40 X was a v al idreturn anddi d n otpro ces s ei th er re tu rn . II. 20 02 Tax Yea r In20 02 pe ti ti on er s ub m itte d t o P MEC a Fo rm W -4 , Em pl oyee’s W ithh ol di ng All owa nc e Certi fic at e, cl ai m in g t ha t h e was ex em ptfro m tax . At th e en d o f 20 02 PMEC i ss ue d t o p et it io ne r a Fo rm W -2 (20 02 Fo rm

W -2 ). The 2 00 2 Fo rm W -2 rep orte d wag es of $ 44 ,76 0.6 2 a ndwithh ol di ng of $ 3,0 39 .01 forSo ci al Secu rit y tax , $7 10 .60 forMed ic are t ax , andno withh ol di ng forFed eral in co m e ta x. Pet it io ne r ti m el y

subm it te d aFo rm

10 40 for20 02 . Peti ti on er re po rte d in co m e fro m

wage s o f $4 4,7 61 an d AGI o f $4 4,7 61 an d c la im edit em iz ed de du ct io ns of $ 51 ,58 7 a ndex em pt io ns of $ 6,0 00 , to to ta l ze ro tax ab le in co m e.- 7 -

[* 7] Pet it io ne r al so rep orte d i nc om e ta x wi th ho ld in g o f $3 ,75 0, re su lt in g i n a refu ndcla im

of $ 3,7 50 , an a m ountequa l t o t he So ci al Secu rit y tax an d M ed ic are ta x P MEC h adpre vi ou sl y withh el d. Ag ai n, p et it io ne r cl ai m eda de du ct io n fo r wha t h e cal le d a“ cl ai m

of r ig ht ” o n S ch edul e A inanam ou ntequa l t o h is Fo rm W -2 wage s. Att ach edto pe ti ti on er’s 2 00 2 re tu rnwas an a ffi da vi t tha t was id en ti cal to th e aff

id av itatt ach edto th e fi rs t 2 00 1 F orm 10 40 X exc ep t fo r th e am ountof d educ ti on cla im ed , whi chfor20 02 was $ 44 ,76 1. Se e supr a p . 5. InSep te m

be r 20 05 pe ti ti on er s ub m itte d aFo rm 10 40 X for20 02 . Peti ti on er rep orte d AGI o f zer o, i te m iz edde du ct io ns or s tand ardde du ct io n o f $7 ,80 0,
ex em pt io ns of $ 6,0 00 , andne ga ti ve tax ab le in co m e o f $1 1,8 52 . Peti ti on er rep orte d i nc om e ta x wi th ho ld in g o f $3 ,75 0, re su lt in g i n arefu ndcla im of $ 3,7 50
. As wi th hi s s eco nd20 01 Fo rm 10 40 X, inth e “ Exp lana ti on of C ha ng es to Inc om e, Deduc ti on s, an d C red it s” sec ti on , pet it io ne r wro te : “ W -2 Pay er m ad e anerro r co nc lu di ng I was a n IR C 3 40 1( c) em pl oyee an d e arn ed34 01 (a) wag es .” Pet it io ne r subm it te d wi th hi s 2 00 2 F orm 10 40 X a se lf- pr ep aredFo rm 48 52 (2 00 2 F orm

48 52 ) rep orti ng zero wage s. Th e 2 00 2 F orm 48 52 requi redpe ti ti on er to ex pl ai n h is effo rts to ob ta in a co rrec te d F orm W -2 ; p et it io ne r ag ai n wro te :

“ Reque st ed , bu t the co m

pa ny refus es to is su e fo rm s co rrec tl y li st in g p aym en ts a[s ] wag es as d efi ne d i n 3 40 1( a) an d 3 12 1( a)”.- 8 -

[* 8] Pet it io ne r’s ti m el y

fil ed20 02 Fo rm

10 40 was a ccep te d a s a v al idreturn a nd pr oc es se d. Re sp on de ntde te rm in edth atpe ti ti on er’s 2 00 2 F orm 10 40 X was n ota va li d re tu rnan d d idno t p ro ces s i t. III. 20 03 Tax Yea r At the en d o f 20 03 PMEC i ss ue d t o p et it io ne r a Fo rm W -2 (20 03 Fo rm W -2 ). The 2 00 3 F orm

W -2 rep orte d wag es of $ 68 ,44 4.9 5 a ndwithh ol di ng of $4 ,67 2.5 5 fo r So ci al Secu rit y tax , $1 ,09 2.9 2 fo r Med ic are t ax , and$5 ,67 0.6 6 fo r Fed eral in co m e ta x. Al so at t he en d o f 20 03 PMEC i ss ue d t o p et it io ne r a Fo rm 10 99 -MI SC re po rti ng $3 04
. Pet it io ne r di d n otfil e a Fo rm 10 40 for20 03 by its du e d at e o r ex te ns io n da te in20 04 . In Se pt em

be r 20 05 pe ti ti on er s ub m it te d aFo rm 10 40 for20 03
. Pet it io ne r dr ew a li ne th ro ug h a ll of t he in co m e it em s an d d idno t re po rt a ny in co m e o r AGI. Peti ti on er re po rte d i nc om e ta x wi th ho ld in g o f $1 1,4 36 .13 an d cl ai m eda refu ndof $ 11 ,43 6.1 3, anam ou ntequa l t o the Fed eral in co m e ta x, So ci al Secu rit y tax , andMed ic are t ax PMEC h adpre vi ou sl y withh el d. Pet it io ne r subm it te d wi th hi s 2 00 3 F orm 10 40 a se lf- pr ep aredFo rm 48 52 (2 00 3 F orm

48 52 ) rep orti ng zero wage s. Th e 2 00 3 F orm 48 52 requi redpe ti ti on er to ex pl ai n h is effo rts to ob ta in a co rrec te d F orm W -2 ; o nc e ag ai n, p et it io ne r wro te :- 9 -

[* 9] “ Reque st ed , bu t the co m pa ny refus es to is su e fo rm s co rrec tl y li st in g p aym en ts a[s ] wag es as d efi ne d i n 3 40 1( a) an d 3 12 1( a)”. Res po nd en t d et erm in edth atpe ti ti on er’s 2 00 3 F orm 10 40 was n ota va li d return anddi d n otpro ces s i t. IV. 20 04 Tax Yea r At the en d o f 20 04 PMEC i ss ue d t o p et it io ne r a Fo rm W -2 (20 04 Fo rm W -2 ). The 2 00 4 F orm

W -2 rep orte d wag es of $ 28 ,25 1.5 8 a ndwithh ol di ng of $1 ,99 4.6 6 fo r So ci al Secu rit y tax , $4 66 .49 for

Med ic are t ax , and$8 58 .64 for Fed eral in co m e ta x. Al so at t he en d o f 20 04 PMEC i ss ue d t o p et it io ne r a Fo rm 10 99 -MI SC re po rti ng $2 ,32 0.7 3. Pet it io ne r subm it te d aFo rm 10 40 for 20 04 on Sep te m

be r 6, 2 00 5. Pet it io ne r ag ai n drew a l in e th ro ug h a ll of t he in co m e it em s an d d idno t re po rt a ny in co m e o r AGI. Peti ti on er re po rte d i nc om e ta x wi th ho ld in g o f $3 ,31 9.7 9 a nd cl ai m eda refu ndof $ 3,3 19 .79 , an am ou ntequa l t o t he Fed eral in co m e ta x, So ci al Secu rit y tax , andMed ic are t ax PMEC h adpre vi ou sl y withh el d. Pet it io ne r subm it te d wi th hi s 2 00 4 t ax return asel f-p rep aredFo rm 48 52 (2 00 4 F orm

48 52 ) rep orti ng zero wage s. Th e 2 00 4 F orm 48 52 requi redpe ti ti on er to ex pl ai n h is effo rts to ob ta in a co rrec te d F orm W -2 ; as with e ve ry

othe r Fo rm- 10 -

[* 10 ] 48 52 , pet it io ne r wro te : “ Reque st ed , bu t the co m pa ny refus es to is su e fo rm s co rrec tl y li st in g p aym en ts a[s ] wag es as d efi ne d i n 3 40 1( a) an d 3 12 1( a)”. Res po nd en t d et erm in edth atpe ti ti on er’s 2 00 4 F orm 10 40 was n ota va li d in co m e ta x re tu rnan d d idno t p ro ces s i t. V. Rev enue Agen t Ex am in at io n Rev enue Agen t J effe rs (RA Je ffer s) was a ss ig ne d t o e xam in e p et it io ne r’s ta x re turn s fo r 20 01 -2 00 4. RA J effe rs cred ib ly test ifi edth atpe ti ti on er was un co op erat iv e an d tha t h e co nt in uo us ly ass ert edfri vo lo us arg um en ts th ro ug ho ut th e ex am in at io n p ro ces s. Pet it io ne r fai le d t o app ear f orth ree d iff

eren t s ch edul ed ap po in tm en ts with RA Jef fers . In a l et te r da te d M ay 3, 2 00 3, p et it io ne r subm it te d to th e In te rn al Rev enue Serv ic e (IR S) the same affid av itth atwas a tt ach edto hi s 20 02 Fo rm

10 40 inwhi chhe ass ert eda “ cl ai m of r ig ht ” d educ ti on . In an ot he r le tt er p et it io ne r subm it te d t o RA Jef fers da te d Oct ob er 1 3, 2 00 4, p et it io ne r st at ed th athe an d h is wife were “pr iv at e ci ti zen s an d n on -ta xp ay ers , as l eg al ly defi ne d.” RA Je ffer s i ss ue d t o p et it io ne r publ ic at io ns ad dr es si ng to pi cs su chas wh y cit iz en s of th e Uni te d S ta te s m

us t p ay tax es an d t he tru th ab ou t fr iv ol ou s t ax arg um en ts . Afte r fai li ng to rece iv e d oc um en ta ti on fro m pe ti ti on er, RA J effe rs is su ed
su m m on se s t o P MEC, an d t o B an k o f Am eri ca fo r pe ti ti on er’s b an k re co rd s.- 11 -

[* 11 ] Pet it io ne r res po nd edby writ in g alet te r da te d J anua ry 28 , 20 05 , to Ban k o f Am eri ca urg in g i t n otto co m pl y with t he su m

m on s. VI. Pet it io ne r’s Ban k R eco rd s Pet it io ne r en do rs edch eck s an d d ep os it edm on ey s re cei ve d fr om PMEC an d
va rio us ot he r so ur ces in to sev eral di ffer en t b an k a cco un ts at Lo cal Okl ah om a Ban k. One s uc h a cco un t was pe ti ti on er’s p ers on al ch eck in g a cco un t tha t h e h el d

3 joi nt ly w ith h is wife (pe rs on al acco un t), wh il e an ot he r was he ldinth e n am es of pe ti ti on er’s wif

e an d d au gh te r. A. Pet it io ne r’s Pers on al Acco un t 4 Pet it io ne r de po si te d m os t o f th e p ay ch eck s h e rec ei ve d fr om PMEC i nt o h is pe rs on al acco un t. Sev eral ti m es each m on th in20 02 an d 2 00 3, p et it io ne r orhi s wife wrot e ch eck s fr om

pe ti ti on er’s p ers on al acco un t m ad e p ay ab le to Brae ch el e Res ources , Inc . (Brae ch el e), fo r ap pr ox im at el y $4 50 -$ 50 0 p er ch eck
.

The Loca l Ok laho m a Ban k l is ts it se lf a s the “ In te rn at io na l Bankof 3 Co m m erce ” o n i ts ba nkreco rd s. Th e Co urt wi ll refe r to th e b an k a s “ Loc al Okl ah om a Ban k”
. Res po nd en t i nt ro du cedin to ev id en ce the ba nkreco rd s fo r pe ti ti on er’s 4 pe rs on al acco un t fo r 20 01 , 20 02 , and20 03 ; the 20 04 ba nkreco rd s wer e n ot in tro du cedin to ev id en ce.- 12 -

[* 12 ] B. W ife an d Dau gh te r’s Acco un t 5 On o ccas io n, p et it io ne r wou ldde po si t ch eck s m ad e o utto hi m in to th e acco un t h el d i n t he na m es of h is wife an d d au gh te r. As wit h p et it io ne r’s pe rs on al
acco un t, i n 2 00 2 a nd20 03 th e acc ou nthe ldinth e n am es of p et it io ne r’s wife an d daug ht er m ad e reg ul ar p aym en ts to Brae ch el e. Als o i n 2 00 2 a nd20 03 Brae ch el e is su edch eck s m ad e p ay ab le to pe ti ti on er’s d au gh te r th atwere d ep os it edin to th e acco un t h el d i n t he na m es of p et it io ne r’s wife an d d au gh te r. VII. Pet it io ne r’s Co nc eal edBan k R eco rd s Inad di ti on to de po si ti ng m on ey s i nt o h is pe rs on al acco un t an d t he acco un t he ldinth e n am es of h is wife an d d au gh te r, pe ti ti on er al so de po si te d m on ey s rece iv edfro m

va rio us so ur ces in to an ot he r Loc al Okl ah om a Ban k a cco un t h el d i n th e n am e o f The oc en tri c Fo un da ti on (The oc en tri c acc ou nt ) an d aBan k o f Am eri ca acco un t h el d i n t he na m e o f Bra ech el e (Br aech el e acc ou nt ). Altho ug h t he Brae ch el e an d Th eo cen tri c acc ou nt s wer e in th e n am es of b us in es s en ti ti es , pe ti ti on er u se d t he fun ds de po si te d i nt o t he se acco un ts to pay th e p ers on al li vi ng ex pe ns es of h im se lf a ndhi s fam il y . Peti ti on er h as id en ti fie d t he se acco un ts , bu t

Res po nd en t i nt ro du cedin to ev id en ce the ba nkreco rd s fo r th e acc ounthe ld 5 in th e n am es of p et it io ne r’s wife an d d au gh te r fo r 20 01 , 20 02 , and20 03 ; the 20 04 ba nkreco rd s wer e n otin tro du cedin to ev id en ce.- 13 -

[* 13 ] he ha s fa il edto ex pl ai n a ny bu si ne ss pu rp os e fo r ei th er the Theo cen tri c acco un t o r th e Bra ech el e acc ou nt . A. The oc en tri c Acco un t 6 Pet it io ne r op en edth e The oc en tri c acc ou ntwith Lo cal Okl ah om a Ban k i n Octo be r 20 02 . On Loc al Okl ah om a Ban k’s “ Bu si ne ss App li cat io n /Sig na tu re Card ” p et it io ne r in di cat edth atTheo cen tri c Fo un da ti on (The oc en tri c) was a

“ co rp or at io n s ol e”, bu t h e d idno t p ro vi de a ta xp ay er i de nt ifi cat io n n um be r oran y 7 ot he r id en ti fy in g i nf

orm at io n o th er tha n Th eo cen tri c’s na m e an d a dd res s. Pet it io ne r de si gn at edhi m se lf a s “ ov ers eer” of Th eo cen tri c. As o ve rs eer, p et it io ne r ha d fu ll co ntro l o ve r th e co rp or at io n s ol e, in cl ud in g s ig na tu re au th or ity . In 2 00 2
an d 2 00 3 p et it io ne r oc cas io na ll y cau se d Th eo cen tri c to writ e ch eck s m ad e p ay ab le Res po nd en t i nt ro du cedin to ev id en ce the ba nkreco rd s fo r th e The oc en tri c 6 acco un t fo r 20 02 an d 2 00 3; th e 2 00 4 b an k re co rd s wer e n otin tro du cedin to ev id en ce. His to ric al ly, a “ co rp or at io n s ol e” i s a s uc ces si on of p ers on s h ol di ng an 7 eccl es ia st ic al or m on arch ia l o ffi ce. See Gardne r v. C omm is si on er, 1 45 T.C. __ , __ (s li p o p. at7) ( Aug . 26 , 20 15 ) (ci ti ng Bla ck ’s Law Dict io na ry 34 2 (7 th ed . 19 99 ), an d B ry anA. Garne r, A Dict io na ry of M od ernLega l Us ag e 2 25 (2ded . 19 95 )). Co rp or at io ns so le are au th or iz edun de r th e la ws o f so m e St at es to en ab le rel ig io us le ad ers to ho ldpro pe rty andco nduc t b us in es s fo r th e b en efi t o f th e rel ig io us en ti ty, as op po se d t o t he be ne fitof t he off ic eh ol de r hi m se lf. Se e id . (ci ti ng Rev
. Ru l. 2 00 4- 41 , 20 04 -1 C.B. 8 45 ). The re co rddo es no t re fle ctwhet he r pe ti ti on er actua ll y to okth e st ep s n eces sa ry

to org an iz e The oc en tri c as a co rp or at io n s ol e un de r th e la ws o f an y

Sta te .- 14 -

[* 14 ] to Brae ch el e an d c on si st en tl y us edfun ds de po si te d i nt o t he Theo cen tri c acco un t t o p ay

hi s p ers on al li vi ng ex pe ns es , in cl ud in g h is cred itcardan d c el l ph on e b il ls . Peti ti on er h as fai le d t o e xp la in an y bu si ne ss pu rp os e fo r th e The oc en tri c acc ount . B. Brae ch el e Acco un t 8 Brae ch el e was in co rp or at edinth e St at e o f Nev ad a o n Ap ril 16 , 20 01 . On it s Fo rm SS-4 , App li cat io n fo r Em pl oyer Ide nt ifi cat io n Nu m be r, W il li am

Reed
was li st edas t he pri nc ip al off ic er o f Bra ech el e. Init s arti cl es of i nc or po rat io n, Brae ch el e st at edth atit s fi rs t b oa rdof d ire ct or s wo ul d c on si stof o ne m em be r, Mr. Ree d. Onan ot he r do cu m en t s ub m it te d t o B an k o f Am eri ca, Mr . Reedwas l is te d
as Brae ch el e’s pr es id en t, s ecre tary , tre as ur er, an d d ire ct or . On Ban k o f Am eri ca’s

“ Si gn at ory

Not ari zat io n F orm ” Mr. Re edwas l is te d a s the pe rs on with s ig na tu re au th or ity ov er the Brae ch el e acc ou nt . On it s Fo rm SS-4 , ho wev er, Bra ech el e li st edit s b us in es s ad dr es s as th e sa m e ad dr es s p et it io ne r ha d c on si st en tl y li st edon hi s IR S fi li ng s, an d t he acco un t s ta te m en ts forth e Bra ech el e acc ou ntwere m ai le d to pe ti ti on er’s ad dr es s.

Res po nd en t i nt ro du cedin to ev id en ce the ba nkreco rd s fo r th e Bra ech el e 8 acco un t fo r 20 01 , 20 02 , 20 03 , and20 04
.- 15 -

[* 15 ] Pet it io ne r ro ut in el y de po si te d p ers on al ch eck s h e rec ei ve d fr om va rio us so ur ces in to th e Bra ech el e acc ou nt . In ad di ti on , as d is cu ss edsupr a, Brae ch el e rece iv edan d d ep os it edch eck s fr om pe ti ti on er’s p ers on al acco un t, the acco un t h el d in th e n am es of p et it io ne r’s wife an d d au gh te r, an d the Theo cen tri c acc ou nt . Dur in g a ll of t he y ears at i ss ue , pet it io ne r us edth e Bra ech el e acc ou ntto pa y for th e p ers on al li vi ng expe ns es an d o th er p ers on al ex pe ns es of h im se lf andhi s fam il y . Im

po rta nt ly, al l ch eck s i ss ue d o utof t he Brae ch el e acc ountwere i n t he
na m e o f Bra ech el e an d wer e p re-s ig ne d b y Mr. Ree d. Pe ti ti on er ad m it te d dur in g tri al th atth e Bra ech el e acc ount , alt ho ug h i n t he na m e o f Bra ech el e, was real ly his pe rs on al acco un t. Insu m m ary, m uc h o f pe ti ti on er’s i nc om e was co nc eal edinth e Bra ech el e an d Th eo cen tri c acc ou nt s. Pet it io ne r so m et im es de po si te d m on ey s d ire ct ly int o th e co rp or at e acc ount s, b utm os t o f th e ti m e h e d ep os it edm on ey s h e rec ei ve d i nt o hi s p ers on al acco un t, o r, al te rn at iv el y , in to anacco un t h el d i n t he na m es of h is wife an d d au gh te r. Reg ul ar p aym en ts were the n m ad e to Brae ch el e fro m pe ti ti on er’s p ers on al acco un t an d t he acco un t h el d i n t he na m es of p et it io ne r’s wife an d d au gh te r. Fro m th e The oc en tri c an d B raec he le acco un ts , pet it io ne r wou ldth enis su e ch eck s i n t he na m es of t he co rp or at io ns to pa y th e p ers on al
ex pe ns es of h im se lf a ndhi s fam il y . Mos t ex pe ns es were p ai d o utof the Brae ch el e- 16 -

[* 16 ] acco un t, l ik el y

be cau se Mr. Ree d s en t b lank , pre -s ig ne d c he ck s t o p et it io ne r, who th enha d u nf

ette reddi sc ret io n t o u se ch eck s tha t wer e in a co rp or at io n’s n am e an d wer e n otsi gn edby pet it io ne r hi m se lf t o p ay pe rs on al ex pe ns es . Infact , in20 12 Mr. Ree d p le ad edgu il ty to 1 co un t o f co ns pi racy to d efraud th e Uni te d S ta te s, 3 1 c ou nt s o f ag gr av at edid en ti ty the ft, and1 co un t o f ev as io n o f pa ym en t o f ta x. As pa rt o f th e p le a m em or an du m subm it te d t o t he U.S. Dist ric t Co urt fo r th e Dis tri ctof Ne va da , Mr. Ree d a dm it te d t ha t h e h el pe d fo rm an d was a m em be r of th e fi rs t b oa rdof d ire ct or s o f Ass etPro te ct io n Gro up , Inc . (APG). In th e p le a m em or an du m

Mr. Ree d a ls o a dm it te d t o t he fol lo win g: APG’s “ as se t p ro te ct io n” servi ces all owe d c li en ts to pl ace f un ds in ba nkacco un ts th atco ul d n ev er b e tr acedba ckto th e cl ie nt s th em se lv es . APG effectua te d t hi s p ro ces s b y crea ti ng an d u si ng Nev ad a co rp or at io ns whi chem pl oyed APG as res id en t ag en t an d no m in ee o ffi cer, v iaREED. T he va stm ajor ity of the Neva da co rp or at io ns li st edREED as the no m in ee o ffi cer. Th e m ajor ity of ba nkacco un ts est ab li sh edby A PG fo r th es e n ewly form edNeva da co rp or at io ns were o pe ne d a t Nev ad a Fi rs t Ba nk , whi chwas p ur ch as ed by Bankof Ne va dain20 06 . Becau se REED was the so le off ic er an d di rect orof t he Neva daco rp or at io ns crea te d b y APG, REED was us ua ll y th e so le si gn or

on th e Ban k o f Nev ad a n om in ee b an k acco un ts . To al lo w APG cli en ts to acce ss fun ds de po si te d i n t he no m in ee ac co un ts , REED woul d e ithe r is su e ch eck s o n the no m in ee ba nkacco un ts at t he di rect io n o f th e APG cl ie nt s, o r he wou ldsen d bl an k, p re-s ig ne d, ch eck s t o t he cu st om ers to us e atth ei r di sc ret io n. The APG cli en ts ha d c om pl et e co nt ro l o f th e Nev ad a co rp or at io ns an d t he no min ee b an k a cco un ts ass oc ia te d wi th th e co rp or at io ns .- 17 -

[* 17 ] VIII. Pet it io ne r’s Co nc eal edReal Est at e Pro pe rti es an d t he GreenFam il y

Trus t Pet it io ne r own edsev eral pro pe rti es , in cl ud in g o ne on Beec h S tre et , ano th er on 11 1t h S tre et , andon e o n As pe n S tre et , all inBro ke n Arr ow, Ok laho m a (Be ech Pro pe rty, 111 th Str eetPro pe rty, andAsp enPro pe rty, resp ect iv el y ). Acco rd in g t o a uni fo rm res id en ti al lo anap pl ic at io n s ig ne d b y pe ti ti on er o n Ap ril 20 , 20 04 , th e Bee chPro pe rty, 111 th Str eetPro pe rty, andAsp enPro pe rty hadm ark etva lu es of $1 65 ,00 0, $ 14 0,0 00 , and$8 5,0 00 , res pe ct iv el y . Dati ng ba ckto 19 96 each of t he se pr op ert ie s ap pe aredto ha ve be entra ns ferr edsev eral ti m es be twee n p et it io ne r an d
se ve ral en ti ti es forli tt le or n o c on si de rat io n v iaqu it cl ai m de edor g en eral warran ty de ed . Peti ti on er h as fai le d t o e xp la inan y bu si ne ss pu rp os e fo r th e m ul ti pl e tra ns fers
. A. Bee chPro pe rty On Ap ril 25 , 19 96 , pet it io ne r pu rp orte d t o t ran sf er the Beec h P ro pe rty to a n en ti ty call edBeac h P ro pe rti es forco ns id erat io n o f $2 1. On Au gu st7, 2 00 1, 9 Bea chPro pe rti es pu rp orte d t o t ran sf er the Beec h P ro pe rty to B raec he le for

The Co urt i s awa re o f th e d iff eren t s pe ll in gs --Be ech an d B each --tha t ar e 9 us edfor th e Bee chPro pe rty, whic h i s o n B eech Str eet , andth e en ti ty Beach Pro pe rti es . There is no ev id en ce i n t he reco rdas t o wh ethe r “ Bea chPro pe rti es ” is a rea l b us in es s en ti ty.- 18 -

[* 18 ] co ns id erat io n o f $1 21 . On March 18 , 20 04 , Braec he le pu rp orte d t o t ran sf er th e Bee chPro pe rty backto pe ti ti on er fo r co ns id erat io n o f $2 5; pe ti ti on er’s wif e si gn edth e qui tc la im

de edas B raec he le ’s vi ce p res id en t. OnMarc h 3 0, 2 00 4, Bea chPro pe rti es pu rp orte d t o t ran sf er the Beec h P ro pe rty backto pe ti ti on er fo r co ns id erat io n o f $1 0; pe ti ti on er s ig ne d t he qu it cl ai m de edas B each Pro pe rti es ’
au th or iz edag en t. Als o o n M arch 30 , 20 04 , Braec he le ag ai n p ur po rte d t o t ran sf

er th e Bee chPro pe rty backto pe ti ti on er fo r co ns id erat io n o f $1 0, b utth is ti m e pe ti ti on er s ig ne d t he qu it cl ai m de edas B raec he le ’s vi ce p res id en t. Pet it io ne r th en pu rp orte d t o t ran sf

er the Beec h P ro pe rty to D. Sco ttHein em anan d Kurt F
. Jo hn so n, tru st ees of t he GreenFam il y Trus t, o n J un e 1 0, 2 00 4. No ne of t he tra ns fers were re fle ct edon th e res pe ct iv e ta x re tu rn s fo r th e y ears at i ss ue . B. 11 1t h S tre etPro pe rty On J anua ry

16 , 19 98 , pet it io ne r si gn eda qu it cl ai m de edpu rp orti ng to tra ns fer the 11 1t h S tre etPro pe rty to a n e nt ity cal le d F utur e Res ou rces for
co ns id erat io n o f $2 1. Fu tu re Re so ur ces th enpurp orte d t o tran sf er the 11 1t h S tre et Pro pe rty to B raec he le by qui tc la im de edforco ns id erat io n o f $1 21 on Aug us t 7 , 20 01 . On March 18 , 20 04 , Braec he le pu rp orte d t o t ran sf er the 11 1t h S tre et pr op erty ba ckto pe ti ti on er fo r co ns id erat io n o f $2 5; pe ti ti on er’s wif e si gn edth e qu it cl ai m de edas B raec he le ’s vi ce p res id en t. OnApri l 2 0, 2 00 4, Br aech el e ag ai n- 19 -

[* 19 ] pu rp orte d t o t ran sf

er the 11 1t h S tre etPro pe rty to p et it io ne r fo r co ns id erat io n of $1 0, o nl y

th is ti m e p et it io ne r si gn edth e qui tc la im de edas B raec he le ’s vi ce pr es id en t. Ag ai n, n on e o f th e tr an sf ers were re fle ct edon th e res pe ct iv e ta x re tu rn s fo r th e y ears at i ss ue . C. Asp enPro pe rty On Se pt em

be r 16 , 20 03 , an e nt ity

cal le d S EJA-4 , L.C., purp orte d t o t ran sf er th e Asp enPro pe rty to p et it io ne r by gen eral warran ty deedforco ns id erat io n o f $1 0. Pe ti ti on er the n p ur

po rte d t o t ran sf

er the Asp enPro pe rty to Th eo cen tri c fo r co ns id erat io n o f $2 5 o n M arch 12 , 20 04 . On Ju ne 10 , 20 04 , pet it io ne r an d h is wife ag ai n p ur

po rte d t o t ran sf

er the Asp enPro pe rty by qu it cl ai m

de ed , bu t thi s ti m e to Mr. Hei ne m anan d M r. Jo hn so n, tru st ees of t he GreenFam il y Trus t. On Aug us t 1 6, 2 00 4, Th eo cen tri c p ur po rte d t o t ran sf

er the Asp enPro pe rty to t he Green Fam il y

Trus t fo r co ns id erat io n o f $1 0; pe ti ti on er s ig ne d t he qu it cl ai m de ed
as Theo cen tri c’s ov ers eer. No ne of t he tra ns fers were re po rte d o n the res pe ct iv e ta x re turn s fo r th e y ears at i ss ue . D. Green Fam il y

Trus t Pet it io ne r an d h is wife pu rp orte d t o e st ab li sh th e “ Green Fam il y Trus t” , na m in g M r. Hein em anan d M r. Jo hn so n a s tru st ees .- 20 -

[* 20 ] In20 04 an d 2 00 5 M r. Hein em anan d M r. Jo hn so n ra n am ortg ag e el im in at io n s ch em e th ro ug h a n e nt ity cal le d t he “ Dor eanGroup” . In 2 00 5 M r. Hein em anan d M r. Jo hn so n wer e in di ct edon ch arg es of c on sp ira cy to co m m it
m ai l fr au d a ndov er 3 0 c ou nt s o f m ai l fr au d fo r th ei r pa rti ci pa ti on inth e m ortg ag e el im in at io n s ch em e; bo th were u lt im at el y fou ndgu il ty andsen te nc edto ov er 2 0 y ears ina Fed eral pe ni te nt iary . Res po nd en t i nt ro du cedin to ev id en ce the in di ctm en t ag ai ns t M r. Jo hn so n a ndMr. Hei ne m anth atwas fi le d i n t he U.S. Dis tri ctCo urt fo r th e North ernDis tri ctof C al ifo rn ia . The rel ev an t p arag rap hs in th e in di ctm en t s ta te :

10 . As pa rt o f th e Dor eanGroup’s d eb t el im in at io n p ro gr am , Hein em an , Jo hn so n, an d t he Dore anGroup e st ab li sh edtru st s (“ Trus ts ”). The tru st ees of t he Trus ts were Hei ne m anan d J oh ns on , an d t he be ne fic iarie s wer e th e Dor eanGroup’s cl ie nt . In fu rth eran ce of th e p ro gr am , Hein em an , Jo hn so n, an d t he Dore anGroup c au se d Dor eanGroup c li en ts to reco rdqu it cl ai m de ed s wi th th e rec or de r’s of fic e, cl erkof t he co urt’s o ffi ce, an d re gi st er o f de ed s’ off ic e in th e juri sd ic ti on inwhi chth e Dor eanGroup’s cl ie nt s’ pro pe rti es were lo cat ed , wher eb y

cli en ts pu rp orte dl y

tra ns ferr edth ei r res pe ct iv e in te res ts inm ortg ag edpro pe rti es to th e co rres po nd in g Tru st s. 11 . Hein em an , Jo hn so n, an d t he Dore anGroup t he n c au se d t o be sen t b y

Mai l Del iv ery a “ se lf- ex ecu ti ng pre se nt m en t p ack et ” (h erei na fte r, “ Pres en tm en t Pa ck et ”) co ns is ti ng of v ari ou s d oc um en ts to th e le nd ers of t he Dore anGroup’s cl ie nt s’ lo an s. Inth e Pres en tm en t Pa ck et , Hein em an , Jo hn so n, an d t he Dore anGroup cl ai m edto be au th or iz edto acton be ha lf o f th e b orro wer an d de m an de d t he len de r to pro ve th e v al id ity of i ts lo anto th e b orro wer withi n 1 0 d ay s * * * . W or di ng inth e Pre se nt m en t Pa ck etfurth er- 21 -

[* 21 ] all eg edth atif the len de r fai le d t o p ro ve th e v al id ity of t he lo an , th e Dor eanGroup wo ul d d eem th is to be th e le nd er’s “ ta ci t as se t” an d “ de fau lt ,” an d wo ul d a ctas t he len de r’s ag en t an d a tt orne y -in -fac t t o “ co rrec t t it le ” o n t he pro pe rty secu redby the len de r’s lo an . 12 . After aPres en tm en t Pa ck etwas s en t b y Mai l Del iv ery to th e le nd er o f a Do rean Group c li en t’s l oa n, an d a t l eas t 1 0 d ay s h ad el ap se d, Hei ne m an , Jo hn so n, an d the Dore anGroup c au se d a* * * “ Sp eci fic Po wer o f Att orne y ” * * * to be sen t, ty pi cal ly by Mai l Deli ve ry , to th e rec or de r’s of fic e, cl erkof t he co urt’s o ffi ce, an d reg is te r of

de ed s’ off

ic e in th e juri sd ic ti on inwhi cheach cli en t’s pr op erty was l oc at edto be reco rd edon th e cl ie nt ’s pro pe rty tit le . In th is reco rd at io n, o n wh ic h Hei ne m an ’s si gn atur e typi cal ly app eare d, Hein em an , andif h e was no t ab le , Jo hn so n, was pu rp orte dl y act in g a s ag en t an d a tt orne y -in -fac t o n b eh al f of th e le nd er. 13 . Acti ng all eg ed ly on b eh al f of th e le nd er as it s ag en t an d/ or at to rn ey -in -fac t, Hei ne m an , Jo hn so n, an d t he Dore anGroup c au se d a * * * “ Dis ch arg e o f Mo rtg ag e” * * * to be sen t, ty pi cal ly by Mai l Deli ve ry , to th e rec or de r’s of fic e, cl erkof t he co urt’s o ffi ce, an d reg is te r of

de ed s’ off

ic e in th e juri sd ic ti on inwhi chth e Dor eanGroup cl ie nt ’s pro pe rty was lo cat edto be reco rd edas p artof tha t p ro pe rty’ s ti tl e. Inth is reco rd at io n * * * itwas fa ls el y cla im edth atth e lo an se cu redby the pro pe rty hadbe enful ly pai d, wh ensu chlo anha d n ot be enful ly repai d. Th is reco rd at io n c au se d t he Dore anGroup c li en t’s pr op erty ti tl e to fal se ly app ear f

ree a ndcle ar o f an y

en cu m br an ces , whe n t he len de r’s se cu redlo anha d n otbe enful ly pai d. 14 . W ith t it le ap pe ari ng free a ndcle ar o f an y en cu m br an ces , Hein em an , Jo hn so n, an d t he Dore anGroup c au se d a t l eas t fi ve of i ts cl ie nt s t o s uc ces sf

ul ly obt ai n arefi na nc e lo anfro m a se pa rat e le nd er. Whe n arefi na nc e lo anwas o bt ai ne d, the Dore anGroup * * * rece iv ed 50 % of t he refi na nc e lo an ’s pro ceed s, the Dore anGroup c li en t ret ai ne d app ro xi m at el y

25 -4 0% o f th e p ro ceed s * * *- 22 -

[* 22 ] Res po nd en t i nt ro du cedth e fo ll owi ng do cu m en ts in to ev id en ce t o de m on st rat e th atpe ti ti on er p art ic ip at edinth is m ortg ag e el im in at io n s ch em e: ona un ifo rm res id en ti al lo anap pl ic at io n s ig ne d Ap ril 20 , 20 04 , pet it io ne r st at edth at th e Asp enPro pe rty was s ub ject t o am ortg ag e o f $6 3,0 00 ; p et it io ne r cau se d t o b e reco rd edwith t he reco rd er’s o ffi ce a qui tc la im de edsi gn edon June 10 , 20 04 , whe reb y pe ti ti on er an d h is wife pu rp orte d t o t ran sf er the Asp enPro pe rty to M r. Hein em anan d M r. Jo hn so n i n the ir c ap aci ty as trus te es of t he GreenFam il y Trus t; Mr. Hei ne m anth ensi gn edan d s en t t o the reco rd er’s o ffi ce a d is ch arg e o f
m ortg ag e whi chcla im edth atth e m ortg ag e o n t he Asp enPro pe rty was fu ll y pa id
an d re qu es te d t he reg is te r of de ed s t o d is ch arg e th e m ortg ag e; an d a tt ach edto th e di sc ha rg e o f m ortg ag e was a sp eci fic po wer o f at to rn ey th ro ug h wh ic h M r. Hein em anpu rp orte d t o b e th e at to rn ey -in -fac t o f Co un trywide Hom e Loans . InMarc h 2 01 5 t he U.S. Dist ric t Co urt fo r th e North ernDis tri ctof Okl ah om a d et erm in edth atpe ti ti on er h adatt em pt edto pa rti ci pa te inth e m ortg ag e el im in at io n s ch em e b y

crea ti ng th e Green Fam il y Trus t an d n am in g M r. Hein em an an d M r. Jo hn so n a s p ur

po rte d t ru st ees . See Un it edSta te s v . Green , No. 1 2- CV44 1- JED-FHM , 20 15 W L 14 82 50 8 (N.D. Ok la . Mar. 3 1, 2 01 5) , aff’d s ub no m . Uni te d S tate s v . W el ls Farg o Ho m e Mo rtg ., __F. App ’x __ , 20 15 W L 75 67 26 9- 23 -

[* 23 ] (10 th Cir . Nov . 25 , 20 15 ). The Di stric t Co urt o rd eredth atall tra ns fers of 1 0 th e Bee chPro pe rty, 111 thStr eetPro pe rty, andAsp enPro pe rty m ad e to th e Green Fam il y Trus t wer e nul l, v oi d, an d wi th ou t ef fect . Id., 2 01 5 WL 75 67 26 9, at*4 . In ad di ti on , th e Dis tri ctCo urt o rd eredth atall in stru m en ts fil edby the Green s, M r. Hein em an , or M r. Jo hn so n i n an a tt em ptto ex ti ng ui sh or d im in is h t he li enrig ht s of th e m ortg ag ee b an ks , in cl ud in g any spe ci fic po wer o f at to rn ey an d d is ch arg e o f
m ortg ag e, were n ul l, v oi d, an d wi th ou t ef fect . Id. IX. Subs ti tu te s fo r Returns Res po nd en t p rep aredsubs ti tu te s fo r returns un de r se ct io n 6 02 0( b) for pe ti ti on er’s t ax y ears 20 01 , 20 03 , and20 04 st at in g t ha t p et it io ne r ha d u nr ep orte d wag e o r sa lary

in co m e o f $1 52 ,49 6, $ 68 ,44 4, an d $ 28 ,25 1 a ndun rep orte d bu si ne ss in co m e o f $2 07 , $3 04 , and$2 ,32 0 fo r 20 01 , 20 03 , and20 04 , res pe ct iv el y . In ad di ti on , th e subs ti tu te forreturn fo r pe ti ti on er’s 2 00 4 t ax y ear st at edth atpe ti ti on er was subjec t t o s el f-em pl oym en t t ax of $ 32 8. Th es e subs ti tu te s fo r returns co ns is te d o f Fo rm s 4 54 9, In co m e Tax Exam in at io n Ch an ge s, Fo rm s 8 86 -A, Exp lana ti on of I te m s, an d F orm s 1 34 96 , IRC Se ct io n

The Co urt t ak es jud ic ia l n ot ic e o f th e U.S. Dis tri ctCo urt fo r th e North ern 1 0 Dis tri ctof Ok laho m a’s de ci si on an d t he U.S. Cou rt o f App eal s fo r th e Ten th Ci rcu it ’s affi rm at io n.- 24 -

[* 24 ] 60 20 (b ) Certi fic at io n, wh ic h wer e si gn edby an au th or iz edIRS o ffi ci al or em pl oyee. OPINION I. Unr ep orte d In co m e A. Bu rd enof P ro of Gen eral ly, th e Co m

m is si on er’s d et erm in at io ns setforth ina no ti ce o f de fic ie nc y

are p res um edco rrec t, an d t he tax pa y er b ears th e b ur de n o f sh owi ng th e de te rm in at io ns are i n e rro r. Ru le 14 2( a); W el chv. Hel ve rin g, 2 90 U.S. 11 1, 1 15 (1 93 3) . Whe n acas e in vo lv es un rep orte d i nc om e, th e U.S. Co urt o f App eal s fo r th e Ten th Cir cu it , to whi chth is cas e wou ldbe ap pe al ab le ab se nta st ip ul at io n t o th e co nt rary, has he ldth atth e Co m m is si on er’s d et erm in at io n o f un rep orte d in co m e is en ti tl edto a pr es um pt io n o f co rrec tn es s o nc e so m e subs tant iv e ev id en ce is in tro du cedde m on strat in g t ha t the tax pa y er re cei ve d u nr ep orte d i nc om e. Uni te d St at es v. Mc Mu ll in , 94 8 F .2d11 88 , 11 92 (10 th Cir . 19 91 ). Once th e Co m m is si on er i ntro du ces so m e subs tant iv e ev id en ce l in ki ng th e ta xp ay er t o t he in co m e, th e p res um

pt io n o f co rrec tn es s ap pl ie s an d t he bu rd ensh ift s t o t he ta xp ay er t o p ro du ce s ub st an ti al ev id en ce o ve rco m in g i t. Id
. Res po nd en t i nt ro du cedin to ev id en ce Fo rm s W-2 an d F orm s 1 09 9- MIS C fo r 20 01 , 20 03 , and20 04 . The rec or d e st ab li sh es an d p et it io ne r adm it te d a t tria l tha t- 25 -

[* 25 ] he rece iv edpa ym en ts as r ep orte d fo r 20 01 , 20 03 , and20 04 . The Co urt
co nc lu de s tha t re sp on de ntha s l ai d t he requi si te m in im al ev id en ti ary fo un da ti on fo r th e co nt es te d u nr ep orte d i nc om e an d t ha t re sp on de nt ’s det erm in at io ns are en ti tl edto th e p res um

pt io n o f co rrec tn es s. Sect io n 7 49 1( a) s hi fts th e b ur de n o f pr oo f to th e Co m m is si on er i f th e ta xp ay er p ro du ces cred ib le ev id en ce o n a ny factu al is su es an d s at is fie s the requi rem en ts of s ect io n 7 49 1( a)(2 ). Pet it io ne r di d n otarg ue forth e ap pl ic ab il ity of sec ti on 74 91 (a) andha s n otsh own th athe m eet s the requi rem en ts to sh iftth e bu rd en ; the refo re, the burd enof p ro of rem ai ns hi s. B. Gro ss Inc om e The no ti ce o f de fic ie nc y

for20 01 , 20 03 , and20 04 was b as edon subs ti tu te s fo r returns pre pa redby resp on de ntun de r se ct io n 6 02 0( b) . On th e b as is of t he Fo rm s W-2 an d F orm s 1 09 9- MIS C, subs ti tu te s fo r returns were p rep aredinwhi ch
res po nd en t d et erm in edth atpe ti ti on er h adun rep orte d wag e o r sa lary in co m e o f $1 52 ,49 6, $ 68 ,44 4, an d $ 28 ,25 1 a ndun rep orte d b us in es s i nc om e o f $2 07 , $3 04 , an d $ 2,3 20 for20 01 , 20 03 , and20 04 , res pe ct iv el y . Sect io n 6 1( a)(1 ) an d (2 ) de fin es gro ss in co m e as “ al l i nc om e fro m what ev er so ur ce d eri ve d” , in cl ud in g c om pe ns at io n fo r se rv ic es an d g ro ss in co m e d eri ve d- 26 -

[* 26 ] fro m

bu si ne ss . W ag es an d s al ari es are co m pe ns at io n fo r se rv ic es th atare in cl ud ib le ingro ss in co m e. See s ec. 1 .61 -2 (a), In co m e Tax Reg s. Pet it io ne r adm it te d a t tria l t o re cei vi ng co m pe ns at io n fo r se rv ic es as rep orte d o n F orm s W-2 an d F orm s 1 09 9- MIS C fo r 20 01 , 20 03 , and20 04 . That
co m pe ns at io n fa ll s wi th in th e d efi ni ti on of g ro ss in co m e und er s ect io n 6 1( a). Pet it io ne r ha s m ad e m an y un fo un de d a rg um en ts --i nc lu di ng anass ert io n t ha t wag es are n otin co m e--wh ic h l eadhi m to hi s co nc lu si onth athe is no t l iabl e fo r Fed eral in co m e ta x, al l o f whi ch , th is Co urt an d t he U.S. Cou rt o f App eal s fo r th e Ten thCir cu itha ve co ns is te nt ly hel d, l ackev enco lo rab le m eri t an d are fri vo lo us . See Lo ns da le v. Un it edSta te s, 9 19 F.2d14 40 , 14 48 (10 th Cir . 19 90 ) (the fo ll owi ng arg um en ts , am on g o th ers , m ad e b y th e ta xp ay ers were “ co m pl et el y la ck in g i n l eg al m eri t an d p at en tl y fri vo lo us ”: (1) wage s ar e n otin co m e, (2 ) no st atut ory au th or ity ex is ts forim

po si ng anin co m e ta x o n i nd iv idua ls , and(3) th e Co m m is si on er h as no po wer o r au th or ity to adm in is te r th e In te rn al Rev enue laws ); Aldric h v . Comm is si on er, T.C. Mem o. 2 01 3- 20 1, at* 9 (ta xp ay er’s arg um en t tha t th e “ la ckof u nd erl y in g C od e o f Fed eral Reg ul at io ns to supp ort the st atut es ”
nu ll ifi edth e st atut es was fr iv ol ou s) ; Gar be r v. C omm is si on er, T.C. Mem o. 2 01 2- 47 , 20 12 W L 57 07 28 , at * 2 (t ax pa y er’s cl ai m s tha t the Co m m is si on er was un ab le to pro vi de hi m

with a ny sect io n o f th e Co de th atwou ldm ak e th e ta xp ay er l iabl e- 27 -

[* 27 ] forFed eral in co m e ta x a ndth athe was n ota withh ol di ng ag en t wer e fri vo lo us an d d ev oi d o f an y ba si s i n l aw), aff’d, 5 00 F. App ’x 54 0 (7 th Cir . 20 13 ); Lin db erg v. Co m

m is si on er, T.C. Mem o. 2 01 0- 67 (ta xp ay er’s arg um en t tha t h er wag es were n ottax ab le be cau se th e th ird -p arty in fo rm at io n re tu rn s d idno t
co rrec tl y ap pl y th e d efi ni ti on of wa ge s i n s ect io n 3 12 1( a) l ack edev en co ns id erab le m eri t an d was fri vo lo us ); C ars ka do n v . Comm is si on er, T.C. Mem o. 20 03 -2 37 , 20 03 WL 21 90 41 66 , at * 3 (t ax pa y ers ’ arg um en t tha t wag es were n ot in co m e was fri vo lo us wher e th e arg um en ts were t ax de fie r rh et or ic “ba se d o n m ere se m an ti cs ” an d u ns up po rte d b y th e la w); C or co ranv. Co m m is si on er, T.C. Mem o. 20 02 -1 8, 2 00 2 WL 71 02 9, at* 2 (ta xp ay er’s arg um en t tha t h e h adno gro ss in co m e p ur su an t t o s ect io n 8 61 fro m so ur ces withi n t he Uni te d S ta te s an d wi th ou t th e Uni te d S ta te s was co m pl et el y lac ki ng inm eri t), a ff’d, 5 4 F . App ’x 25 4 (9 th Ci r. 20 02 ). The C ou rt p erce iv es no ne edto ad dr es s p et it io ne r’s arg um en ts furth er; to do so mig htsu gg es t tha t the se arg um en ts ha ve so m e co lo rab le m eri t. See Crai n v. Co m m is si on er, 7 37 F.2d14 17 , 14 17 (5t h C ir. 1 98 4) ; Wnu ckv. Co m m is si on er, 13 6 T.C. 4 98 , 51 3 (2 01 1) . Accor di ng ly, res po nd en t’s d et erm in at io ns with re sp ect to pe ti ti on er’s unr ep orte d i nc om e fo r 20 01 , 20 03 , and20 04 are s us ta in ed , and- 28 -

[* 28 ] res po nd en t’s d et erm in at io n t ha t p et it io ne r is li ab le forsel f-em pl oym en t t ax fo r 20 04 is su st ai ne d. 1 1 II. 20 02 Dedu ct io n B as edon Sect io ns 86 1 a nd13 41 Deduc ti on s an d c red it s ar e a m at te r of leg is la ti ve gra ce, an d t he tax pay er be ars th e b ur de n o f pr ov in g e nt it le m en t t o a ny deduc ti on or c red itcla im edon a return. INDOPCO, In c. v. Co m m is si on er, 5 03 U.S. 79 , 84 (19 92 ); Ne w Col on ia l Ice C o. v . Helv eri ng , 29 2 U.S. 4 35 , 44 0 (1 93 4) . As with t he un rep orte d i nc om e is su e, se e supr a p . 25 , pet it io ne r di d n otarg ue forth e ap pl ic ab il ity of s ect io n 74 91 (a) andha s n otsh ownth athe m eet s the requi rem en ts to sh iftth e b ur de n; th eref or e, th e b ur de n o f pr oo f rem ai ns hi s. Res po nd en t p ro ces se d p et it io ne r’s 20 02 in co m e ta x re tu rnbu t d is al lo wed wha t p et it io ne r ha d t erm eda “ cl ai m of r ig ht ” d educ ti on on hi s Sc he du le A of $4 4,7 61 . Peti ti on er’s cl ai m edde du ct io n was equa l t o t he wage s h e rec ei ve d fr om PMEC i n 2 00 2. Inth e aff id av itatt ach edto hi s 2 00 2 F orm 10 40 , pet it io ne r st at ed th atth e d educ ti on was b as edon sec ti on 13 41 an d s ect io n 1 .86 1- 8( a)(5 )(i ), In co m e Tax Reg s., fo r “ co m

pe ns at io n fo r pe rs on al lab orth atwas re cei ve d a s re pa ym en t o f
On the ba si s o f pe ti ti on er’s b us in es s i nc om e o f $2 ,32 0 i n 2 00 4, re sp on de nt 1 1 de te rm in edth atpe ti ti on er i s l iabl e fo r se lf- em pl oym en t t ax of $ 32 8 fo r 20 04 , ta ki ng in to acco un t the de du ct io n a ll owe d b y sec . 16 4. Se e se c. 14 01 . Peti ti on er di d n otch al le ng e th is de te rm in at io n i n h is pe ti ti on .- 29 -

[* 29 ] a de bt ”. As d is cu ss edsupr a, pe ti ti on er’s arg um en t i s the type o f fri vo lo us arg um en t tha t thi s C ou rt a ndth e U.S. Co urt o f App eal s fo r th e Ten th Cir cu itha ve co ns is te nt ly rejected . See e.g ., Lon sd al e, 91 9 F .2dat 1 44 8; Cars ka do n v . Co m m is si on er, 2 00 3 WL 21 90 41 66 , at * 3; Co rco ranv. Co m m is si on er, 2 00 2 WL 71 02 9, at* 2 . Accor di ng ly, res po nd en t’s d is al lo wan ce o f pe ti ti on er’s 2 00 2 Sch edul e A de du ct io n b as edon sec ti on s 8 61 an d 1 34 1 i s s us ta in ed
. III. Sect io n 6 65 1( f) Ad di ti onto Tax Res po nd en t d et erm in edpe ti ti on er was li ab le forth e se ct io n 6 65 1( f) frau du le ntfai lu re t o fi le ad di ti on to tax for20 01 , 20 03 , and20 04
. Sect io n 6 65 1( a)(1 ) im

po se s an ad di ti on to tax forfai lure t o t im el y fil e a Fed eral in co m e ta x re tu rn . Sect io n 6 65 1( f) p ro vi de s tha t the subs ect io n (a )(1 ) ad di ti on to tax sh al l b e in crea se d fr om 5% t o 1 5% o f th e ta x re qu ire d t o b e sh own on th e return fo r eac h m on th or f ract io n the reo f fo r whi chth ere i s a f ai lu re t o fi le a return, up t o 7 5% i n the ag gr eg at e, whe re s uc h fa il ur e to ti m el y fil e is frau du le nt . Inasc ert ai ni ng whet he r a t ax pa y er’s fai lure t o t im el y fil e was frau du le ntun de r se ct io n 6 65 1( f), th e Co urt co ns id ers whet he r th e ta xp ay er (1 ) fai le d t o t im el y fil e a return fo r th e ta xabl e y ear wh ere the re was a ta x l iabi li ty requ ire d t o b e sh own on a return (2 ) be cau se of f

rau du le ntin te nt . See s ec. 6 65 1( a), (b )(1 ), (f); Cla yto n v . Co m m is si on er, 1 02 T.C. 63 2, 6 53 (19 94 ); P orte r v. C omm is si on er, T.C. Mem o.- 30 -

[* 30 ] 20 15 -1 22 , at * 44 . Res po nd en t h as th e b ur de n o f pr ov in g t he se ele m en ts by cl ear a ndco nv in ci ng ev id en ce fo r eac h year fo r whi chfrau d i s al le ge d. Se c. 74 54 (a); Ru le 14 2( b) ; s ee Zel l v . Comm is si on er, 7 63 F.2d11 39 , 11 42 (10 th Cir
. 19 85 ), aff’g T.C. Me m o. 1 98 4- 15 2; Cla yto n v . Comm is si on er, 1 02 T.C. at 6 46 ; Po rte r v. C ommis si on er, at*4 4; Tay lo r v. C omm is si on er, T.C. Mem o. 1 99 5- 26 9, 19 95 W L 36 32 02 , at * 5, af f’d witho utpubl is he d o pi ni on , 10 8 F .3d13 88 , 19 97 W L 13 97 44 (10 th Cir . 19 97 ). A. Whe th er Pe ti ti on er Fi le d Val idReturns Bec au se sec ti on 66 51 (f) i nc reas es th e ad di ti on to tax im po se d b y subs ect io n (a)( 1) , res po nd en t fi rs t m us t p ro ve th atpe ti ti on er fa il edto ti m el y fil e a requi red Fed eral tax return. Se e se c. 66 51 (a)( 1) . Res po nd en t i nt ro du cedFo rm s W-2 sh owi ng th atpe ti ti on er ea rn eden ou gh in co m e to requi re h im to m ak e a return fo r each of t he y ears at i ss ue . See s ecs . 60 11 (a), 6 01 2( a)(1 )(A). Alt ho ug h p et it io ne r subm it te d d oc um en ts pu rp orti ng to be returns for20 01 , 20 03 , and20 04 , res po nd en t d et erm in edth atth os e returns were i nv al id
. The Co de do es no t d efi ne whatco ns ti tu te s a v al idreturn. Se e App le to n v . Co m m is si on er, 1 40 T.C. 27 3, 2 84 (20 13 ). On the ba si s o f th e Supr em e Co urt’s op in io ns inZell erb achPap er Co . v. Hel ve rin g, 2 93 U.S. 17 2 (1 93 4) , and Fl or sh ei m

Bro s. Drygoo ds Co . v. Un it edSta te s, 2 80 U.S. 45 3 (1 93 0) , th is Co urt- 31 -

[* 31 ] ha s es tabl is he d afou r-p arttes t t o d et erm in e whe th er a d oc um en t s ub m it te d by a tax pa y er i s a v al idreturn. Inord er t o qua li fy as areturn, the do cu m en t m us t
m eetth e fo ll owi ng requi rem en ts : (1 ) th e d oc um en t m us t co nt ai n s uf

fic ie ntda tato cal cu la te tax li ab il ity ; (2 ) th e d oc um en t m us t p ur po rt t o b e a return; (3) th ere m us t be anho ne stan d re as on ab le att em ptto sat is fy

th e requi rem en ts of t he tax law; an d (4 ) th e ta xp ay er m

us t ex ecu te th e return u nd er p en al ti es of p erjury . Beardv. Co m m is si on er, 8 2 T.C. 7 66 , 77 7 (1 98 4) , aff’d, 7 93 F.2d13 9 (6 th Cir . 19 86 ); s ee Est at e o f San de rs v. Co m m is si on er, 1 44 T.C. 63 , 78 (20 15 ); Ap pl et on v. Co m m is si on er, 1 40 T.C. at 2 84 -2 85 . This Co urt an d t he U.S. Court o f App eal s fo r th e Ten th Cir cu itha ve co ns is te nt ly hel d t ha t a F orm 10 40 with z ero s o n e ve ry in co m e li ne is de vo idof f in an ci al da taan d i s the refo re n ota va li d re tu rn . See, e.g ., Uni te d S ta te s v . Mel ot , 56 2 F . App ’x 64 6, 6 51 (10 th Cir . 20 14 ); Un it edSta te s v. Ri ckm an , 63 8 F .2d18 2, 1 84 (10 th Cir . 19 80 ) (h ol di ng th ata do cu m en t tha t do es no t p ro vi de in fo rm at io n fr om whi cha ta x c anbe co m

pu te d i s n ota return) ; Cab ira c v . Comm is si on er, 1 20 T.C. 16 3, 1 69 (20 03 ). Pet it io ne r’s se co nd20 01 Fo rm 10 40 X andFo rm s 1 04 0 fo r 20 03 an d 2 00 4 re po rte d z ero s o n e ve ry in co m e li ne . Accor di ng ly, pe ti ti on er’s s eco nd20 01 Fo rm 10 40 X andFo rm s 1 04 0 fo r 20 03 an d 2 00 4 wer e n otva li d t ax returns .- 32 -

[* 32 ] Pet it io ne r di d n otfil e a Fo rm 10 40 for20 01 ; i ns te ad , pet it io ne r fi le d t wo Fo rm s 1 04 0X. Alt ho ug h t he fir st20 01 Fo rm 10 40 X rep orte d AGI o f $1 52 ,70 5, th e return l ack edin fo rm at io n s uf fic ie ntto ap pr is e res po nd en t o f pe ti ti on er’s Fed eral tax li ab il ity

an d m is rep res en te d S oc ia l Se curit y tax withh el d a s Fe de ral in co m e ta x wi th he ld . Evenif the fir st20 01 Fo rm 10 40 X hadno t m is rep res en te d pe ti ti on er’s Fed eral in co m e ta x wi th ho ld in g, the return l ack edin fo rm at io n su ffi ci en t t o app ris e res po nd en t o f pe ti ti on er’s Fed eral tax li ab il ity be cau se itdo es no t co nt ai n a ny inf

orm at io n a s t o t he so ur ce o f in co m e fro m whi chtax was pu rp orte dl y

withh el d. Se e Uni te d S ta te s v . Ric km an , 63 8 F .2dat 1 84 (whe re the ta xp ay er re po rte d z ero in co m e, reque st eda refu ndof t ax withh el d, b utdi d n ot
m ak e d is cl os ur es fro m

whi cha ta x m ig htbe de te rm in ed , th e Co urt h el d t ha t the return d idno t co nt ai n i nf orm at io n fr om

whi cha ta x c ou ldbe co m pu te d andwas no t an ho ne stan d re as on ab le att em ptto sat is fy

th e requi rem en ts of t he tax law) ; Om anv. Co m

m is si on er, T.C. Mem o. 2 01 0- 27 6, 2 01 0 WL 52 09 36 0, at*1 0 (ap pl y in g t he Bear d t es t, the Co urt d et erm in edth ata ta xp ay er’s Fo rm 10 40 di d n ot
co nt ai n s uf

fic ie ntdatato cal cu la te tax li ab il ity wher e th e return s ho wed$6 ,05 5 t ax withh el d b utdi d n otco nt ai n any inf orm at io n a s t o i nc om e fro m whi chsu chtax
was purp orte dl y

withh el d) . Becau se pe ti ti on er’s fi rs t 2 00 1 F orm 10 40 X di d n ot- 33 -

[* 33 ] co nt ai n s uf

fic ie ntda tato cal cu la te th e ta x l iabi li ty, itwas n ota va li d t ax return. Se e Ri ckm an , 63 8 F .2dat 1 84 ; Be ardv. Co m m is si on er, 8 2 T.C. at77 7. Res po nd en t h as cle arl y

an d c on vi nc in gl y

pro ve n tha t p et it io ne r ha d an ob li ga ti on to fil e ti m el y

in co m e ta x re tu rn s s ho win g t ax li ab il it ie s fo r 20 01 , 20 03 , an d 2 00 4, an d fa il edto do so . 1 2 B. Whe th er Pe ti ti on er’s Fai lu re t o F il e Was Frau du le nt Inde te rm in in g wh ethe r a t ax pay er h adth e requi si te frau du le ntin te ntfor im po si ti on of the sec ti on 66 51 (f) ad di ti on to tax , th e Co urt co ns id ers th e sa m e el em en ts th atitco ns id ers inim po si ng th e fraudpe na lty

un de r se ct io n 6 66 3 a nd fo rm er s ect io n 6 65 3( b) (1 ). Cla yto n v . Comm is si on er, 1 02 T.C. at 6 53 . Frau d i s es tabl is he d b y

pro vi ng th ata ta xp ay er i nt en de d t o e va de tax be li ev edto be owi ng by con du ctin te nd edto co nc eal , m is le ad , or o th erwi se pre ve ntth e co ll ect io n o f ta x. Zel l v . Comm is si on er, 7 63 F.2dat 1 14 2- 11 43 ; Cl ayto n v . Comm is si on er, 1 02 T.C. at 6 47 . The ex is te nc e o f frau du le ntin te ntis de te rm in edby loo ki ng at t he
en ti re re co rdan d t he tax pa y er’s co nduc t. See DiLeo v. Co m m is si on er, 9 6 T.C.
Bec au se sec . 66 51 (f) i s k ey edto subs ec. (a) (1 ), a ta xp ay er ca nn otbe li ab le 1 2 fo r a s ub se c. (f) ad di ti onto tax if the fai lu re t o fi le is du e to reas on ab le cau se an d no t wi ll fu l n eg le ct . See s ec. 6 65 1( a)(1 ); M oh am edv. Co m mis si on er, T.C. Mem o. 20 13 -2 55 , at * 22 -* 23 . Peti ti on er b ears th e b ur de n o f pr oo f with re ga rdto th e “ reas on ab le cau se ” ex cep ti onof s ec. 6 65 1( a)(1 ), se e Hig be e v . Comm is si on er, 1 16 T.C. 43 8, 4 47 (20 01 ), an d h e d idno t m eetth is bu rd en .- 34 -

[* 34 ] 85 8, 8 74 (19 91 ), aff’d, 9 59 F.2d16 (2dCir . 19 92 ); Taylo r v. C omm is si on er, 19 95 W L 36 32 02 , at * 5. Fraudis ne ve r pr es um edan d m us t b e p ro ve n b y in de pe nd en t ev id en ce. Zel l v . Comm is si on er, 7 63 F.2dat 1 14 3; Beav er v . Co m m is si on er, 5 5 T.C. 8 5, 9 2 (1 97 0) ; Taylorv. Co m mis si on er, 1 99 5 WL 36 32 02 , at*5 . Frau d n eedno t b e es tabl is he d b y di rectev id en ce, wh ic h i s ra rel y av ai labl e, bu t m ay be pro ve d b y

cir cu m st an ti al ev id en ce an d re as on ab le in fere nc es dra wn fro m th e fac ts . Niedrin gh au s v . Comm is si on er, 9 9 T.C. 2 02 , 21 0 (1 99 2) ; Taylorv. Co m m is si on er, 1 99 5 WL 36 32 02 , at * 5. Inde te rm in in g wh ethe r th ere was frau du le ntin te nt , th e Co urt wi ll lo okat a
no ne xc lu si ve li stof f

act or s, o r “ba dg es of f

rau d.” See Br ad fo rdv. Co m m is si on er, 79 6 F .2d30 3, 3 07 (9t h C ir. 1 98 6) , aff’g T.C. Mem o. 1 98 4- 60 1; Niedrin gh au s v . Co m m is si on er, 9 9 T.C. at21 1; Reck li ti s v . Comm is si on er, 9 1 T.C. 8 74 , 91 0 (1 99 8) ; Taylorv. Co m

m is si on er, 1 99 5 WL 36 32 02 , at * 5. Th es e fac to rs in cl ud e: (1 ) fai li ng to fil e in co m e ta x re tu rn s; (2) fil in g fa ls e d oc um en ts , in cl ud in g fa ls e in co m e ta x re tu rn s; (3) un de rs ta ti ng in co m e; (4) co nc eal in g i nc om e o r as se ts ; (5 )
en ga gi ng inil le ga l ac ti vi ty; (6) fai li ng to co op erat e wit h t ax au th or it ie s; an d (7 )
as se rti ng fri vo lo us arg um en ts an d o bjec ti on s t o t he tax laws . Brad fo rdv. Co m m is si on er, 7 96 F.2dat 3 07 ; Ni edrin gh au s v . Comm is si on er, 9 9 T.C. at21 1; Tay lo r v. C ommis si on er, 1 99 5 WL 36 32 02 , at * 5. Whil e n o s in gl e fac to r is- 35 -

[* 35 ] de te rm in at iv e fo r es tabl is hi ng frau d, the ex is te nc e o f se ve ral “ba dg es of frau d” m ay

co ns ti tu te co m

pe ll in g c irc um st an ti al ev id en ce o f frau d. Br ad fo rdv. Co m m is si on er, 7 96 F.2dat 3 07 -3 08 ; Ni edrin gh au s v . Comm is si on er, 9 9 T.C. at 21 1; Tay lo r v. C omm is si on er, 1 99 5 WL 36 32 02 , at * 5. Th e U.S. Co urt o f App eal s fo r th e Ten th Cir cu itha s h el d t ha t wi ll fu l re fu sa l t o fi le or t he fil in g o f pr ot es t returns is no t b y

it se lf e no ug h t o ju st ify frau d p en al ti es ; ra th er, wh ena ta xp ay er fai ls to fil e a return, h e is no t l iabl e fo r frau d p en al ti es un le ss he co m m it s s om e affi rm at iv e actof c on ceal m en t o r m is rep res en ta ti on . Zell v. Co m m is si on er, 7 63 F.2 d a t 1 14 6. Pet it io ne r’s be ha vi orex hi bi ts m an y of t he ba dg es li st edab ov e. (1 ) Fai li ng To Fi le Inc om e Tax Returns Whi le th e m ere f

ai lu re t o fi le a return, s tand in g a lo ne , is no t s uf fic ie ntto
supp ort a f

in di ng of f

rau d, s ee i d., an ex te nd edpa tt ernof f ai li ng to fil e returns is a ba dg e o f frau d a ndm ay

be pe rs ua si ve cir cu m st an ti al ev id en ce o f th e in te ntto
ev ad e ta x. Se e Bra df

or d v . Comm is si on er, 7 96 F.2dat 3 08 ; Pe tz ho ld t v . Co m m is si on er, 9 2 T.C. 6 61 , 70 1 (1 98 9) . Peti ti on er fa il edto fil e v al idFed eral- 36 -

[* 36 ] in co m e ta x re tu rn s fo r 20 01 , 20 03 , and20 04 , as d is cu ss edsupr a. Thi s fa ct or weig hs ag ai ns t p et it io ne r fo r 20 01 , 20 03 , and20 04
.

(2 ) Fi li ng Fal se Docu m en ts Fi li ng fal se do cu m en ts with t he IRS co ns ti tu te s an“ affi rm at iv e act ” o f
m is rep res en ta ti on su ffi ci en t t o ju st ify the frau d p en al ty. Zell v. Co m mis si on er, 76 3 F .2dat 1 14 6. Pe ti ti on er fi le d fa ls e d oc um en ts with t he IRS fo r 20 01 , 20 03 , an d 2 00 4. Fo r eac h year, pe ti ti on er s ub m it te d a n i nv al idFo rm 10 40 or F orm 10 40 X andsubm it te d fa ls e Fo rm s 4 85 2 re po rti ng zero wage s af te r un su cces sf

ul ly at te m pt in g t o p ers ua de PMEC t o s ub m itfal se Fo rm s W-2. Noton ly didpe ti ti on er at te m ptto ev ad e in co m e ta x b y fil in g fa ls e returns , bu t ea chy ear h e atte m pt edto ha ve So ci al Secu rity

an d M ed ic are t ax erro ne ou sl y refu nd edto hi m

by repo rti ng th os e am ou nt s as in co m e ta x wi th ho ld in g. Th is fact orweig hs ag ai ns t p et it io ne r fo r 20 01 , 20 03 , and20 04
.

(3 ) Und ers ta ti ng Inc om e A pat te rnof s ub st an ti al ly und erre po rti ng in co m e fo r se ve ral y ears is stro ng ev id en ce o f frau d, p art ic ul arl y if the un de rs ta te m en ts are n otdu e to in no cen t
m is ta ke or a re n otot he rwis e sa ti sf act or il y ex pl ai ne d. Se e Hol landv. Un it ed St at es , 34 8 U.S. 1 21 , 13 7- 13 9 (1 95 4) ; Sp ie s v . Uni te d S ta te s, 3 17 U.S. 49 2, 4 99 (1 94 3) ; M arcu s v . Comm is si on er, 7 0 T.C. 5 62 , 57 7 (1 97 8) , aff’d wit ho ut- 37 -

[* 37 ] publ is he d o pi ni on , 62 1 F .2d43 9 (5 thCir . 19 80 ); Taylo r v. C omm is si on er, 19 95 W L 36 32 02 , at * 6. Pe ti ti on er ad m it te d t ha t h e rec ei ve d a ll am ou nt s tha t
were re po rte d o n h is Fo rm s W-2 an d F orm s 1 09 9- MIS C, y ethe eit he r rep orte d
zero in co m e o r at te m

pt edto “ zero ou t” hi s i nc om e b y cla im in g d educ ti on s i n am ount s equa l t o h is in co m e und er the fri vo lo us “ cl ai m of r ig ht ”. Thi s fa ct or weig hs ag ai ns t p et it io ne r fo r 20 01 , 20 03 , and20 04
.

(4 ) Co nc eal in g In co m e an d As se ts An i nt en t t o e va de tax m ay be in ferr edfro m

“ co nc eal m en t o f as se ts or co ve rin g up s ou rces of i nc om e.” Sp ie s, 3 17 U.S. at 4 99 . Con ceal in g a ss et s co up le d wi th a fai lu re t o fi le tax returns is a st ro ng in di cat io n o f frau d. Fre idus v. Co m m is si on er, T.C. Mem o. 1 99 9- 19 5, 1 99 9 WL 39 19 19 , at * 10 . A tax pa y er’s u se of no min ee co rp or at io ns is ev id en ce o f as se t co nc eal m en t. See Ben ne ttv. Co m m is si on er, T.C. Mem o. 2 01 4- 25 6, at*1 2 (f in di ng a ta xp ay er l iabl e fo r th e se ct io n 6 65 1( f) ad di ti on to tax wher e h e ad op te d v ari ou s m ean s o f co nc eal in g in co m e b y

di ve rti ng in co m e to no m in ees ); Lai n v . Comm is si on er, T.C. Mem o. 20 12 -9 9, 2 01 2 WL 11 29 85 1, at*5 (“ Pl aci ng ti tl e to ass et s i n t he na m e o f a
no m in ee ev id en ces a ta xp ay er’s fraudul en t i nt en t.”) ; DeVri es v. Co m m is si on er, T.C. Mem o. 2 01 1- 18 5, 2 01 1 WL 34 18 24 8, at*7 (fi nd in g t ha t p la ci ng ti tl e to
as se ts inth e n am e o f no m in ees ev id en ces th atth e ta xp ay er’s fai lu re t o fi le tax- 38 -

[* 38 ] returns was d on e wit h fr au du le ntin te ntfor th e ta xp ay er t o b e subjec t t o t he
se ct io n 6 65 1( f) ad di ti on to tax ); F rei du s v . Commis si on er, 1 99 9 WL 39 19 19 , at * 11 (fi nd in g t ha t the tax pa y er u se d c or po rat e acc ou nt s as m ere r ep os it or ie s fo r pr oc eed s d eri ve d fr om

th e ta xp ay er’s i nc om e-p ro du ci ng act iv it ie s) ; J on es v. Co m m is si on er, T.C. Mem o. 1 99 4- 23 0, (f in di ng th ata ta xp ay er’s u se of a lt er eg o co rp or at io ns to co nduc t p ers on al as we ll as b us in es s tran sa ct io ns was e vi de nc e o f
as se t co nc eal m en t), a ff’d wit ho utpubl is he d o pi ni on , 68 F.3d46 0 (4 th Cir . 19 95 ). A no m in ee i s anen ti ty or in di vi du al who ho ld s b are l eg al ti tl e to ass et s o wne d b y an ot he r en ti ty or in di vi du al . See Ox fo rdCap it al Co rp v. Un it edSta te s, 2 11 F.3d 28 0, 2 84 (5t h C ir. 2 00 0) ; DeVri es v. Co m m is si on er, 2 01 1 WL 34 18 24 8, at*7
. Perh ap s m os t d am

ni ng to pe ti ti on er, res po nd en t i nt ro du cedcle ar an d
co nv in ci ng ev id en ce tha t p et it io ne r wen t t o g reatlen gt hs to affi rm at iv el y actto
co nc eal in co m e an d a ss et s. Pet it io ne r us edat l eas t two co rp or at e n om in ee b an k
acco un ts --the Brae ch el e an d Th eo cen tri c acc ount s- -to co nc eal pe rs on al in co m e. Res po nd en t i nt ro du cedcle ar an d c on vi nc in g e vi de nc e in th e fo rm of b an k
reco rd s s ho win g tha t m

uc h o f pe ti ti on er’s i nc om e fl owe d i nt o andth enou t o f th e Brae ch el e an d Th eo cen tri c acc ou nt s. Th e Bra ech el e an d Th eo cen tri c acc ou nt s, ho wev er, were no th in g m or e th anco rp or at e n om in ees ; al l i nc om e an d e xp en se s flo win g t he refr om

were ch arg eab le to pe ti ti on er. Pet it io ne r wou ldeit he r de po si t- 39 -

[* 39 ] pe rs on al in co m e d ire ct ly int o o ne of t he co rp or at e n om in ee ac co un ts or de po si t i nc om e in to hi s p ers on al acco un t o r anacco un t h el d i n t he nam es of h is wife an d d au gh te r an d t he n m ak e a s ep arat e p aym en t fr om hi s p ers on al acco un t o r hi s wi fe an d d au gh te r’s acco un t t o o ne of t he co rp or at e n om in ee ac co un ts . Perh ap s m os t al arm in g a ndth e st ro ng es t ev id en ce o f pe ti ti on er’s i nt en t t o c on ceal in co m e an d a ss et s i s the factth atpe ti ti on er re cei ve d andha d u nf et te reddi sc ret io n to us e b lankch eck s i n t he na m e o f Bra ech el e th atwere p re-s ig ne d b y Mr. Ree d. Pet it io ne r us edth os e ch eck s t o p ay th e p ers on al ex pe ns es of h im se lf andhi s fam il y . In o th er wo rd s, p et it io ne r de li be rat el y fun ne le d h is in co m e in to Brae ch el e with t he ex pe ct at io n t ha t i t wo ul d c om e o utof t he fun ne l wi th ou t b ei ng ab le to be tra cedba ckto hi m . The Br aech el e acc ou ntas s tru ctur edan d o pe rat edby pe ti ti on er i s the sch em e d ev is edby Mr. Reed ; the same sch em e th atlea d M r. Reed to pl eadgu il ty to co ns pi racy to d efraudth e Uni te d S ta te s, ag gr av at edid en ti ty th eft , andev as io n o f pa ym en t o f ta x. Pe ti ti on er h as no t at te m pt edto arg ue th ata le gi ti m at e b us in es s p ur

po se ex is ts foreit he r th e Bra ech el e o r The oc en tri c acco un ts ; t o t he co nt rary, peti ti on er o pe nl y adm it te d a t tria l tha t the Brae ch el e acco un t was hi s p ers on al acco un t. Onth e b as is of t he ev id en ce p res en te d t o t he Co urt, re sp on de ntha s co nv in ci ng ly establ is he d t ha t p et it io ne r cre at edat l eas t the Brae ch el e an d Th eo cen tri c acc ou nt s fo r th e p ur po se of c on ceal in g h is pe rs on al- 40 -

[* 40 ] in co m e und er the gu is e o f co rp or at e n om in ees Brae ch el e (an d M r. Reed ) an d The oc en tri c in20 01 , 20 03 , and20 04
. Thi s fa ct orweig hs ag ai ns t p et it io ne r fo r 1 3 20 01 , 20 03 , and20 04
. Inad di ti on to co nc eal in g i nc om e in co rp or at e n om in ee b an k a cco un ts , pe ti ti on er u se d c or

po rat e n om in ees to co nc eal ass et s. Th e Co urt h as pre vi ou sl y he ldth atpl aci ng ti tl e to ass et s i n t he na m e o f no m in ees ev id en ces frau du le nt in te ntfora ta xp ay er t o b e subjec t t o t he sec ti on 66 51 (f) ad di ti on to tax . See DeVri es v. Co m

m is si on er, 2 01 1 WL 34 18 24 8, at*7 ; Leg ge ttv. Co m m is si on er, T.C. Mem o. 1 99 9- 10 0, af f’d witho utpubl is he d o pi ni on , 22 1 F .3d13 57 (11 th Cir
. 20 00 ). Pet it io ne r pu rp orte d t o t ran sf er the Beec h P ro pe rty, 111 thStr eetPro pe rty,
an d As pe n P ro pe rty betweenhi m se lf a ndsev eral no min ee co rp or at io ns inatt em pt to co nc eal th e p ro pe rti es . Thes e p ro pe rti es , val ue d a t $ 16 5,0 00 , $1 40 ,00 0, an d $8 5,0 00 , res pe ct iv el y , were p ur po rte dl y tra ns ferr edsev eral ti m es forco ns id erat io n no t ex ceed in g $ 12 1 o n a ny tran sf er. Ofte n t im es pe ti ti on er o r hi s wi fe s ig ne d o n
Eve n t ho ug h re sp on de ntdi d n otin tro du ce i nt o e vi de nc e th e 2 00 4 b an k 1 3 reco rd s fo r pe ti ti on er’s p ers on al acco un t, the acco un t h el d i n the na m es of pe ti ti on er’s wif

e an d d au gh te r, an d t he Theo cen tri c acc ount , th e 2 00 4 b an k re co rd s fo r th e Bra ech el e acc ou nt , alo ng with p et it io ne r’s adm is si on s dur in g tria l, es tabl is h t ha t p et it io ne r co nt inue d t o p ay pe rs on al ex pe ns es ou t o f th e Bra ech el e acco un t dur in g 2 00 4. Acco rd in gl y , res po nd en t co nv in ci ng ly establ is he d tha t the Brae ch el e acc ou ntco nt in ue d t o b e n ot hi ng m or e th ana no m in ee b an k a cco un t du rin g 2 00 4.- 41 -

[* 41 ] be ha lf t he vario us en ti ti es , in di cat in g t ha t p et it io ne r st il l co nt ro ll edth e u se an d d is po si ti on of t he pro pe rti es . Peti ti on er h as no t p res en te d a ny evi de nc e o r adva nc edan y

arg um en t t o re bu t re sp on de nt ’s ass ert io n t ha t p et it io ne r us edBeac h Pro pe rti es , Braec he le , Futur e Res ou rces , Theo cen tri c, an d t he GreenFam il y Trus t
as no min ees to co nc eal hi s p ers on al ass et s. Th is fact orweig hs ag ai ns t p et it io ne r.

(5 ) Eng ag in g i n Il le ga l Act iv ity Eng ag in g i n a n i ll eg al act iv ity is a ba dg e o f frau d. Se e Nie dr in gh au s v . Co m m is si on er, 9 9 T.C. at21 1. In20 04 pe ti ti on er p art ic ip at edinanil le ga l
m ortg ag e el im in at io n s ch em e b y crea ti ng th e Green Fam il y Trus t an d t he n tra ns ferr in g the Asp enPro pe rty to t he GreenFam il y Trus t. Aft er the tra ns fer the

“ tru st ees ”, pu rp orti ng to be th e at to rn ey -in -fac t fo r th e le nd er, the n c au se d a

“ Sp eci fic Po wer o f Att orne y ” an d “ Dis ch arg e o f Mo rtg ag e” t o b e d el iv eredto th e reco rd ers off

ic e an d re qu es te d adi sc ha rg e o f m ortg ag e o n t he Asp enPro pe rty. Thi s s ch em e, as stru ctur edan d o pe rat edby pet it io ne r, is th e sa m e sc he m e fo r whi chMr. Hei ne m anan d M r. Jo hn so n, the “ tru st ees ” o f th e Green Fam il y Trus t,
were co nv ic te d fo r frau d. Th is fact orweig hs ag ai ns t p et it io ne r fo r 20 04
.

(6 ) Fai li ng To Co op erat e WithTax Au th or it ie s Fai lu re t o c oo pe rat e wit h re ve nu e ag en ts du rin g a n aud itis a ba dg e o f frau d. See Zel l v . Comm is si on er, 7 63 F.2dat 1 14 6; Gros sh an dl er v . Comm is si on er, 7 5- 42 -

[* 42 ] T.C. 1, 1 9- 20 (19 80 ); Taylo r v. C omm is si on er, 1 99 7 WL 13 97 44 , at * 4. The Co urt h as pre vi ou sl y he ldth atatt em

pt in g t o c irc umve ntth e Co m mis si on er’s effo rts to ob ta in reco rd s wh enhe ha s i ss ue d asu m m on s ev in ces a frau du le nt in te nt . See Po rte r v. C omm is si on er, at*5 8- *5 9. Pe ti ti on er fa il edto ap pe ar at th ree s ch edul edap po in tm en ts an d a tt em pt edto im

pe de RA Je ffer s’ exa m in at io n, fir stby refus in g t o s ub m itdo cu m en ts th atsh e reque st ed , th enby ass ert in g fri vo lo us leg al arg um en ts , andfin al ly by urg in g B an k o f Am eri ca t o re fu se to
co m pl y with h er s umm on s o f th e Bra ech el e acc ou ntreco rd s. Th is fact orweig hs ag ai ns t p et it io ne r.

(7 ) Ass ert in g F riv ol ou s Arg um en ts Fri vo lo us , irre le vant , andm eri tl es s ar gu m en ts , coupl edwith a ffi rm at iv e act s de si gn edto ev ad e Fed eral in co m e ta x, s up po rt afin di ng of f rau d. Se e Kotm ai r v. Co m m is si on er, 8 6 T.C. 1 25 3, 1 25 9- 12 61 (19 86 ); P orte r v. C ommis si on er, at*5 8. Noton ly didpe ti ti on er as se rt f riv ol ou s ar gu m en ts to RA Je ffer s, b ut , as d is cu ss ed
supr a, pe ti ti on er h as co ns is te nt ly m ai nt ai ne d t ho se arg um en ts to th e Co urt i n t hi s cas e an d h as pre vi ou sl y

rai se d fr iv ol ou s ar gu m en ts inot he r cas es be fo re the Co urt. See, e.g ., Greenv. Co m

m is si on er, 6 08 F. App ’x 67 1 (1 0t h C ir. 2 01 5) . The Co urt ha s p rev io us ly w arn edpe ti ti on er tha t i f he co nt in ue d t o a ss ertfri vo lo us arg um en ts ,- 43 -

[* 43 ] th e Co urt wo ul d i m po se th e se ct io n 6 67 3 p en al ty. See i d. Th is fact or weig hs ag ai ns t p et it io ne r. E. Co nc lu si on Tak in g t he en ti re re co rdin to acco un t, the Co urt co nc lu de s tha t p et it io ne r’s fai lu re t o fi le ti m el y

tax returns for20 01 , 20 03 , and20 04 was fr au du le nt . Altho ug h p et it io ne r subm itte d F orm s 1 04 0 o r 10 40 X for 20 01 , 20 03 , and20 04 , no ne of tho se do cu m en ts were v al idreturns . Peti ti on er’s fai lu re t o fi le a va li d return fo r eac h year was de li be rat e an d i nt en de d t o c on ceal th e fac t tha t h e h ad in co m e subjec t t o t ax . Res po nd en t h as pro ve n fr au du le ntin te ntby sho win g t ha t pe ti ti on er co m

m it te d a ffi rm at iv e act s o f co nc eal m en t o r m is rep res en ta ti on with
res pe ctto each y ear. Se e Zel l v . Comm is si on er, 7 63 F.2dat 1 14 6. Pe ti ti on er i s th eref or e li ab le for

th e ad di ti on to tax un de r se ct io n 6 65 1( f) fo r 20 01 , 20 03 , and 20 04 . Sin ce p et it io ne r is li ab le un de r se ct io n 6 65 1( f), th ere i s n o n eedto di sc us s res po nd en t’s al te rn at iv e p os it io n t ha t p et it io ne r is li ab le un de r subs ect io n (a )(1 ). IV. Sect io n 6 66 3 C iv il Frau d P en al ty Res po nd en t d et erm in edth atpe ti ti on er i s l iabl e fo r th e se ct io n 6 66 3 c iv il frau d p en al ty for 2 00 2. Sect io n 6 66 3( a) i m

po se s a p en al ty equ al to 75 % of atax pa y er’s
un de rp aym en t o f Fed eral in co m e ta x t ha t i s due to frau d. An“un de rp aym en t” for- 44 -

[* 44 ] pu rp os es of t he sec ti on 66 63 civ il frau d p en al ty is, i n g en eral , th e ex ces s o f th e am ou ntof t ax du e o ve r th e am ountof t ax sh own on th e return. Se c. 66 64 (a);
se e Mo ha m edv. Co m

m is si on er, T.C. Mem o. 2 01 3- 25 5, at*1 9. If any po rti on of th e und erp aym en t i s at tri bu tabl e to frau d, the en ti re u nd erp aym en t wi ll be tre at ed
as att rib ut ab le to frau d u nl es s the tax pa y er es tabl is he s b y a pr ep on de ran ce o f th e ev id en ce tha t p artof t he un de rp aym en t i s n otdu e to frau d. Se c. 66 63 (b ). In o th er wor ds , th e se ct io n 6 66 3 fr au d p en al ty con si st s o f two ele m en ts : (1 ) th e ex is te nc e of anun de rp aym en t, an d (2 ) frau du le ntin te ntwith re sp ectto so m e p orti on of t he
un de rp aym en t. DiLeo v. Co m m is si on er, 9 6 T.C. at87 3. To est ab li sh frau d, the Co m m is si on er m

us t p ro ve bo th ele m en ts with c le ar an d c on vi nc in g e vi de nc e. Sec. 74 54 ; Ru le 14 2( b) ; Di Leo v. Co m m is si on er, 9 6 T.C. at87 3; Tay lo r v. Co m m is si on er, 1 99 5 WL 36 32 02 , at * 5. As d is cu ss edsupr a, pe ti ti on er was no t en ti tl edto a de du ct io n fo r wha t h e te rm eda “ cl ai m

of r ig ht ” fo r 20 02 ; thu s an un de rp aym en t ex is te d. Re sp on de nt cl earl y an d c on vi nc in gl y

est ab li sh edth e fi rs t el em en t o f th e se ct io n 6 66 3 c iv il frau d p en al ty. As d is cu ss edsupr a, in de te rm in in g wh ethe r a t axpa y er h adth e requi si te frau du le ntin te ntforim

po si ti on of t he sec ti on 66 51 (f) ad di ti on to tax , th e Co urt
co ns id ers th e sa m e el em en ts th atitco ns id ers inim po si ng th e fraudpe na lty

un de r- 45 -

[* 45 ] sec ti on 66 63 an d fo rm er s ect io n 6 65 3( b) (1 ). Cla yto n v . Comm is si on er, 1 02 T.C. at 6 53 . Res po nd en t h as in tro du cedcle ar an d c on vi nc in g e vi de nc e th atm an y of th e b ad ge s o f frau d t ha t wer e p res en t i n 2 00 1, 2 00 3, an d 2 00 4, d is cu ss edsupr a, were p res en t i n 2 00 2 wi thres pe ctto at l eas t s om e p orti onof t he 20 02
un de rp aym en t, the reb y

pro vi ng th e se co ndele m en t o f frau d. Fo r ex am pl e, al th ou gh pe ti ti on er fi le d ava li d F orm 10 40 for 20 02 , he att em

pt edto zero ou t h is 1 4 in co m e und er the fri vo lo us “ cl ai m of r ig ht ”. As h e h adfor20 01 , 20 03 , and20 04 , pe ti ti on er fi le d asel f-p rep aredFo rm 48 52 for20 02 sh owi ng zero wage s af te r fai li ng to co nv in ce PM EC to fil e a fal se Fo rm W -2 . Alth ou gh he ha d n otdo ne so fo r 20 01 , 20 03 , and20 04 , pet it io ne r subm it te d afal se Fo rm W -4 to hi s emplo y er fo r 20 02 cla im in g t o b e ex em ptfro m tax . This Co urt an d t he U.S. Cou rt o f App eal s fo r th e Ten th Cir cu itha ve he ldth atfil in g afal se Fo rm W -4 is an affi rm at iv e actof m is rep res en ta ti on an d t hu s ev id en ce o f frau d. Se e Zel l v
. Co m m is si on er, 7 63 F.2dat 1 14 6 (h ol di ng th atwher e a t axpa y er h adno t m erel y fai le d t o fi le a return b utals o fi le d fa ls e Fo rm s W-4, thu s co m m it ti ng an

“ affi rm at iv e act ” o f m is rep res en ta ti on , im po si ti on of f

rau d p en al ty w as jus ti fie d) ; Inco ntras t t o p et it io ne r’s fir stFo rm 10 40 X for20 01 , pet it io ne r’s Fo rm 1 4 10 40 for20 02 --wh ic h re sp on de ntacce pt edas ava li d re tu rn --was subm itte d o n t he pr op er fo rm

an d s pe ci fie d t he so ur ce-- in co m e fro m wage s- -o f pe ti ti on er’s i nc om e an d wi th ho ld in g. Acco rd in gl y , th e Fo rm 10 40 for20 02 co nt ai ne d s uf fic ie ntda ta to cal cu la te tax li ab il ity .- 46 -

[* 46 ] Nix v. Co m

m is si on er, T.C. Mem o. 2 01 2- 30 4, at*1 1 (f il in g afal se Fo rm W -4 is cir cu m st an ti al ev id en ce o f frau d) , aff’d, 5 53 F. App ’x 96 0 (1 1th C ir. 2 01 4) ; Teet ers v. Co m

m is si on er, T.C. Mem o. 2 01 0- 24 4 (wh ere t he Co m mis si on er h as sh own subs tant ia l am ou nt s o f un rep orte d i nc om e o n wh ic h t he withh ol di ng ha s be enreduc edby sub m is si onof afal se Fo rm W -4 , frau d h as be enest ab li sh edby cl ear a ndco nv in ci ng ev id en ce). Inad di ti on , res po nd en t i nt ro du cedev id en ce i n th e fo rm of b an k s ta te m en ts for20 02 to cle arl y est ab li sh th atth e Bra ech el e an d The oc en tri c acc ount s wer e n othi ng m or e th anco rp or at e n om in ees th ro ug h wh ic h pe ti ti on er co nc eal edhi s i nc om e. See s up ra p p. 3 6- 39
. On the ba si s o f th e en ti re re co rd , th e Co urt co nc lu de s tha t p et it io ne r is li ab le fo r th e ci vi l fr au d p en al ty und er s ect io n 6 66 3 fo r 20 02 . Sin ce p et it io ne r is li ab le
un de r se ct io n 6 66 3, the Co urt wi ll no t d is cu ss res po nd en t’s al te rn at iv e p os it io n th atpe ti ti on er i s l iabl e fo r anaccu racy-rela te d p en al ty und er s ect io n 6 66 2( a). V. Sect io n 6 65 1( a)(2 ) Add it io n t o Tax Res po nd en t d et erm in edth atpe ti ti on er i s l iabl e fo r ad di ti on s t o t ax un de r se ct io n 6 65 1( a)(2 ) fo r fai lu re t o t im el y pa y hi s 2 00 1, 2 00 3, an d 2 00 4 t ax li ab il it ie s. Sect io n 6 65 1( a)(2 ) pr ov id es foranad di ti on to tax of 0 .5% p er m on th up to 25 % forfai lu re t o p ay

th e am ou nt s s ho wn o n areturn u nl es s i t i s s ho wn tha t the- 47 -

[* 47 ] fai lu re i s due to reas on ab le cau se an d n otdu e to wil lfu l n eg le ct . Sect io n 74 91 (c) p ro vi de s tha t the Co m m is si on er b ears th e b ur de n o f pr oduc ti on inan y co urt p ro ceed in g wi thres pe ctto th e li ab il ity of a ny ind iv idua l fo r an y pe na lty , ad di ti on to tax , or a dd it io na l am ou nt . To s at is fy hi s b ur de n o f pr oduc ti on , res po nd en t m us t p ro du ce s uf

fic ie nt
ev id en ce tha t p et it io ne r fi le d re tu rn s s ho win g t ax li ab il it ie s fo r th e y ears at i ss ue . See Whee le r v. C omm is si on er, 1 27 T.C. 20 0, 2 10 (20 06 ), aff’d, 5 21 F.3d12 89 (1 0t h C ir. 2 00 8) . A retu rnpre paredby the Co m mis si on er i n a cco rd an ce wi th
se ct io n 6 02 0( b) is tre at edas t he return fi le d b y th e ta xp ay er fo r th e p ur

po se of de te rm in in g t he am ou ntof t he ad di ti onun de r se ct io n 6 65 1( a)(2 ). Sec. 6 65 1( g) (2 ); Whe el er v . Comm is si on er, 1 27 T.C. at 2 08 -2 09
. Res po nd en t h as th e b ur de n o f pr ov in g t ha t s ub st itut es for returns sat is fy in g th e requi rem en ts of s ect io n 6 02 0( b) were s ub m it te d. Se e Cab ira c v . Co m m is si on er, 1 20 T.C. at 1 70 ; Gl eas onv. Co m m is si on er, T.C. Mem o. 2 01 1- 15 4, 20 11 W L 26 00 91 7, at*1 2; see als o Whee le r v. C omm is si on er, 1 27 T.C. at 2 10
. To co ns ti tu te a se ct io n 6 02 0( b) subs ti tu te forreturn, “ th e return m us t b e subs cri be d, i t m

us t co nt ai n s uf

fic ie ntin fo rm at io n fr om

whi chto co m

pu te th e ta xp ay er’s t ax li ab il ity , andth e return fo rm an d a ny att ach m en ts m

us t p ur po rt t o b e a ‘retu rn ’”. Rad er v . Comm is si on er, 1 43 T.C. 37 6, 3 82 (20 14 ) (quo ti ng Sp ur lo ck- 48 -

[* 48 ] v. Co m

m is si on er, T.C. Mem o. 2 00 3- 12 4, 2 00 3 WL 19 87 15 6, at*1 0) , aff’d, 61 6 F . App ’x 39 1 (1 0t h C ir. 2 01 5) . The Co urt h as he ldth atth e requi rem en ts of
se ct io n 6 02 0( b) ha ve be enm etwher e th e subs ti tu te s fo r returns co ns is t o f Fo rm s 45 49 -A, Form s 8 86 -A, an d F orm s 1 34 96 . See Ra de r v. C omm is si on er, 1 43 T.C. at38 2; Glea so n v . Comm is si on er, 2 01 1 WL 26 00 91 7, at*1 2. Pet it io ne r’s subs ti tu te s fo r returns in cl ud edFo rm s 4 54 9- A, Forms 88 6- A,
an d F orm s 1 34 96
. Furth er, the subs ti tu te s fo r returns pu rp ort t o b e “ se ct io n 1 5 60 20 (b ) returns ”, co nt ai n t he in fo rm at io n n eces sa ry to cal cu la te pe ti ti on er’s li ab il it ie s, an d a re s ub sc rib ed . Peti ti on er’s s ub st itut es forreturns co ns ti tu te va li d
se ct io n 6 02 0( b) returns de em edto ha ve be enfil edby pet it io ne r fo r pu rp os es of
se ct io n 6 65 1( a)(2 ). Acco rd in gl y , res po nd en t h as sat is fie d h is burd en . Onc e th e Co m

m is si on er m eet s h is bu rd en , th e b ur de n o f pr oo f is with t he ta xp ay er t o s ho w th atth e ad di ti on s t o t ax th atth e Co m m is si on er d et erm in edinth e no ti ce o f de fic ie nc y

sh ou ldno t b e im

po se d. Se e Hig be e v . Comm is si on er, 1 16 T.C. 43 8, 4 46 -4 47 (20 01 ). Pet it io ne r’s bu rd enrequi res th athe pro ve th athi s fai lu re t o t im el y

pa y hi s Fe de ral in co m e ta x was du e to reas on ab le cau se an d was
no t due to wil lfu l n eg le ct . See s ec. 6 65 1( a)(2 ). The form s co nt ai n p et it io ne r’s na m e an d a ddres s. Pet it io ne r’s ta xp ay er 1 5 id en ti fic at io n n um

be r (e.g ., Soc ia l Se cu rit y

nu m be r) h as be enred act edin acco rd an ce wi th Ru le 27 (a).- 49 -

[* 49 ] Pet it io ne r di d n otpa y any of h is tax li ab il it ie s fo r 20 01 , 20 03 , and20 04
. Pet it io ne r ha s fa il edto pre se ntan y ev id en ce tha t wo ul d e st ab li shth athi s fa il ur e to pa y was due to reas on ab le cau se , andin st eadhe ha s s ou gh t t o re ly on
un reas on ab le an d u ns up po rtabl e arg um en ts . Accor di ng ly, pe ti ti on er i s l iabl e fo r th e ad di ti on to tax un de r se ct io n 6 65 1( a)(2 ) fo r 20 01 , 20 03 , and20 04
. VI. Sect io n 6 65 4 Ad di ti on to Tax Res po nd en t d et erm in edth atpe ti ti on er i s l iabl e fo r anad di ti on to tax un de r se ct io n 6 65 4( a) fo r fai lu re t o p ay est im at edin co m e ta x fo r 20 01
. Sect io n 6 65 4( a), (b ), an d (c ) im po se s an ad di ti onto tax onanin di vi du al ta xp ay er wh o u nd erp ay s atlea ston e o f fo urrequi redin st al lm en ts of e st im at edtax . The ad di ti on to tax is cal cu la te d wi th refer en ce t o fo urin st al lm en t p aym en ts each equa l t o 2 5% o f th e requi redan nu al pa ym en t. Sec . 66 54 (c)( 1) , (d) (1 )(A). The

“ requi redan nu al pa ym en t” is th e le ss er o f (1 ) 90 % of t he tax sh own on th e return fo r th e ta xabl e y ear ( or , if n o re tu rnis fil ed , 90 % of t he tax forsu chy ear) , or (2 ) 10 0% o f th e ta x s ho wn o n t he tax pa y er’s return fo r th e p rece di ng tax ab le y ear. Sec. 6 65 4( d) (1 )(B) . Opt io n (2 ) do es no t ap pl y wher e a t ax pa y er h as no t fi le d a return fo r th e p rece di ng tax ab le y ear. Id . cl. (i i). The Co m m is si on er h as th e b ur de n o f pr oduc ti on with re sp ectto th e se ct io n 66 54 ad di ti on to tax . Sec. 7 49 1( c). To s at is fy hi s b ur de n o f pr oduc ti on un de r- 50 -

[* 50 ] sec ti on 74 91 (c), the Co m m is si on er m

us t p ro du ce ev id en ce es tabl is hi ng th at th e ta xp ay er h ada “ requi redannu al pa ym en t” as d efi ne d i n s ect io n 6 65 4( d) (1 )(B)
. Whe el er v . Comm is si on er, 1 27 T.C. at 2 11 -2 12 . This bu rd enrequi res th e Co m m is si on er t o p ro du ce ev id en ce tha t al lo ws the Co urt t o d et erm in e th e am ou nt of th e requi redan nu al pa ym en t. See sec . 66 54 (d )(1 )(B) (i) an d (i i); Whe el er v . Co m m is si on er, 1 27 T.C. at 2 12 . To de te rm in e th e am ou ntof p et it io ne r’s requi red
an nu al pa ym en t fo r 20 01 , th e Co urt m us t kno w whet he r pe ti ti on er fi le d areturn fo r th e p rece di ng tax ab le y ear ( 20 00 ) an d, i f so , th e am ountof “ ta x s ho wn” on th at return. Se e se c. 66 54 (d )(1 )(B) (ii ). Thu s, the Co m m is si on er m

us t i nt ro du ce ev id en ce s ho win g wh ethe r pe ti ti on er fi le d areturn fo r 20 00 an d, i f he di d, the
am ountof “ ta x s ho wn” on th atreturn. Se e id
. On the ba si s o f th e rec or d, the Co urt co nc lu de s tha t re sp on de ntha s n otm et hi s b ur de n o f pr oduc ti on . There fo re, p et it io ne r is no t l iabl e fo r th e se ct io n 6 65 4( a) ad di ti on to tax for20 01
. The Co urt h as co ns id eredall of t he arg um en ts m ad e b y th e p art ie s an d t o th e ex te ntth ey

are n otad dr es se d h erei n, the y are co ns id eredun ne ces sa ry , m oo t, irr el ev an t, o r witho utm eri t.- 51 -

[* 51 ] To re fle ctth e fo reg oi ng , An ap pr op ria te de ci si on wil l b e en te red
.