1 Rule references are to the Tax Court Rules of Practice and

Procedure. Section references are to the Internal Revenue Code,

as amended.

 

 

T.C. Memo. 1997-291

UNITED STATES TAX COURT

JOHN L. COLLINS, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 8501-96. Filed June 26, 1997.

John L. Collins, pro se. 

William R. McCants, for respondent.

MEMORANDUM OPINION

BEGHE, Judge: This case is before the Court on respondent’s

motion under Rule 1231 for entry of decision in favor of

respondent by reason of petitioner’s default and failure properly

to prosecute. Respondent determined that petitioner is liable
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for the taxable year 1994 for a deficiency in income tax in the

amount of $24,002, a fraudulent failure to file penalty under

section 6651(f) in the amount of $18,002, and an estimated tax

penalty under section 6654 in the amount of $1,237. 

Background

On May 3, 1996, petitioner timely filed his petition and was

a resident of Tampa, Florida. On July 8, 1996, respondent filed

an answer denying all material allegations in the petition and

alleging facts in paragraph 7 of the answer in support of the

determination that petitioner had an underpayment of tax for the

taxable year 1994 that was due to fraud. A copy of the answer

was served on petitioner. 

Petitioner did not file a reply. On September 20, 1996,

respondent filed a motion under Rule 37(c), asking the Court to

deem admitted the affirmative allegations of fact set forth in

paragraph 7 of respondent’s answer. The Court thereupon served

petitioner with a notice of filing stating that, if “petitioner

files a reply as required by Rule 37(a) and (b) of this Court’s

Rules on or before October 10, 1996, respondent’s motion will be

denied”, and if petitioner does not reply, “the Court will grant

respondent’s motion”. Petitioner did not respond to respondent’s

motion or the Court’s notice of filing. On October 23, 1996, the

Court granted respondent’s Rule 37(c) motion, and the pleadings

in this case were closed. 
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Paragraph 7 of respondent’s answer contains the following

allegations, which have been deemed admitted by reason of our

granting of respondent’s Rule 37(c) motion.

7. FURTHER ANSWERING the petition, and in

support of the determination that the deficiency in

income tax for the taxable year 1994 is due to fraud

with the intent on the part of petitioner to evade tax,

and that the petitioner’s failure to file a federal

income tax return for the taxable year 1994 is due to

fraud, the respondent alleges:

a). John L. Collins, a/k/a John L. Collins, Jr.,

hereinafter “petitioner,” has been consistently

involved in illegal, income-producing activities, to

and through the taxable year 1994 involved in this

case. 

b). Following his 1981 arrest for burglary and

grand larceny, petitioner was convicted and sentenced

to five years’ imprisonment. 

c). Following his 1985 arrest for battery and

battery on a law enforcement officer, petitioner was

convicted and sentenced to another five years’

imprisonment.

d). Pursuant to the 1985 arrest and prosecution,

petitioner filed an affidavit of insolvency dated

May 22, 1985. 

e). Following his 1989 arrest for possession of

illegal drugs, grand theft, and resisting arrest,

petitioner was placed on five years’ community control.

f). Following his 1990 arrest for strong-arm

robbery, violation of probation, possession of cocaine

and resisting arrest, petitioner was sentenced to four

years’, six month’s [sic] imprisonment, to be followed

by five years’ community service. 

g). Petitioner was incarcerated between

September, 1990 and August 20, 1992. 
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h). In September, 1995, petitioner was arrested

for money laundering and heroin trafficking offenses,

and awaits trial on these offenses. 

i). For the taxable years 1990 through 1995, the

taxpayer has voluntarily filed federal income tax

returns, reported income and paid tax as follows:

 Gross Income Reported

 Year Return Filed? Reported Source Tax Paid

 1990 Yes $1,672 Wages None

 1991 No None None None

 1992 No None None None*

 1993 Yes $39,920 (5th Amendment) $11,211

 1994 No None None None

 1995 No None None $1,000**

 * $33 was withheld from $548 received from Easy Staff, Inc. and 

 T.E.L.S.I.

 ** Estimated payment

j). On his federal income tax return delinquently

filed for the year 1993, petitioner admitted that he

had no books and records of his income and expenses,

and no business or personal bank accounts, except for a

savings account opened in 1991.

k). For the taxable year 1994, petitioner filed

an application for an automatic extension of time to

file his 1994 income tax return, representing that his

1994 federal income tax liability was approximately

$1,000.

l). For the taxable year 1994, petitioner filed

an additional application for an extension of time to

October 31, 1994 [sic], in which to file his 1994

income tax return. 

m). Petitioner has never filed a federal income

tax return for the taxable year 1994.

n). Petitioner did not pay the $1,000 liability

estimated with his application for an automatic

extension of time to file his 1994 income tax return.
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o). During the taxable year 1994, petitioner was

engaged in illegal, drug-related, income-producing

activities.

p). During 1994, petitioner derived substantial

unreported income from the aforementioned business

activities.

q). For the taxable year 1994, petitioner failed

to maintain complete books and records of his incomeproducing activities as required by the applicable

provisions of the Internal Revenue Code and the

regulations thereunder. 

r). The records that were maintained by or on

behalf of petitioner for the taxable year 1994 were

deceptive, incomplete, and failed to disclose all of

petitioner’s receipts, and were not properly reflective

of the complete, correct income of petitioner. 

s). Petitioner also engaged in numerous

activities using large quantities of currency during

1994 and other years, and used friends and relatives to

hold title to his assets and to register telephones,

beepers and utilities, all to evade recordkeeping

requirements, and to avoid a “paper trail” of his

receipt of income, and accumulation of assets, and

thereby his true federal income tax liability.

t). Due to the failure of petitioner to maintain

adequate books and records of his income-producing

activities, the secretive nature of his illegal

business activities involving drugs, his use of large

amounts of currency and nominees to avoid the

respondent’s detection of his income, expenses, and

accumulation of assets, and his failure to report his

true taxable income, the respondent has been required

to determine, and has determined, the petitioner’s

correct taxable income for the taxable year 1994 under

the cash expenditures method of reconstructing income. 

u). In making her determination of the

petitioner’s correct taxable income for the taxable

year 1994, the respondent has utilized all records,

memoranda and other sources of information that were

available.
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v). During the taxable year 1994, the petitioner

did not receive any non-taxable gifts.

w). During the taxable year 1994, the petitioner

did not receive any non-taxable inheritances.

x). During the taxable year 1994, the petitioner

did not receive any non-taxable loans to make the

expenditures reflected in respondent’s reconstruction

of petitioner’s source of funds.

y). During the taxable year 1994, the petitioner

did not rely on a cash hoard, refund, or any other nontaxable source for the making of the expenditures

reflected in respondent’s reconstruction of his income. 

z). During the taxable year 1994, the petitioner

made expenditures in the amount of at least $72,731, as

follows:

Down payment on residence at 4117 Muriel Place $ 12,862

Commission paid to real estate agent on purchase 500

Escrow deposit on above purchase 2,000

1993 tax amounts paid in 1994 5,800

Furnishings from Roberd’s 12,565

Gold jewelry (810 pennyweight @ $16 each) 12,960

Tax return preparation fees 1,800

Payments on 1993 Toyota 4-Runner 6,245

Personal living expenses per BLS for 1 person 17,999

Total $ 72,731

aa). Against his unreported income of $72,731,

petitioner was entitled to a personal exemption of

$2,450 a self-employment tax deduction of $4,731, and a

standard deduction of $3,800.

ab). Accordingly, for the taxable year 1994,

petitioner failed to report his receipt of taxable

income in the amount of at least $61,750, all with

fraudulent intent to underpay his income taxes for

1994.

ac). For the taxable year 1994, the petitioner’s

taxable income, his taxable income as reported on his

return, and his understatement of taxable income, were

as follows:
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 1994

Taxable Income as Corrected $ 61,750

Taxable Income as Reported (no return filed) (none)

Understatement of Taxable Income $ 61,750

ad). For the taxable year 1994, the petitioner’s

correct income tax liability, the income tax liability

he reported on his return for said year, and his

understatement of income tax liability for said year,

were as follows:

 1994

Correct Income Tax Liability $ 24,002.00

Income Tax Liability Reported (no return filed) (none) 

Understatement of Income Tax Liability $ 24,002.00

ae). Petitioner fraudulently, and with intent to

evade tax, filed an application requesting an automatic

extension that understated his estimated 1994 federal

income tax liability by over $23,000.00.

af). Petitioner fraudulently, and with intent to

evade tax, failed to report his gross receipts, failed

to report his taxable income, and failed to report his

income tax liabilities on a federal income tax return

for the taxable year 1994. 

ag). Petitioner fraudulently, and with intent to

evade tax, used false entities and names to disguise

his receipt of income.

ah). Petitioner fraudulently, and with intent to

evade tax, relied extensively on cash transactions to

avoid a “paper trail” of his receipt of income.

ai). Petitioner fraudulently, and with intent to

evade tax, failed to maintain books and records of his

income-producing activities.

aj). Petitioner fraudulently, and with intent to

evade tax, attempted to conceal his 1994 expenditures

after he became aware of the audit of his 1994 year.

ak). Petitioner also, with intent to evade tax,

delayed and neglected to fully and timely satisfy his

admitted federal income tax liability for the 1993
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year, by delinquently filing his 1993 return in late

May, 1994, and then delaying the payment of his 1993

admitted tax liability throughout 1994, while making

large expenditures for real estate and other assets.

al). Despite the petitioner’s arrest in 1995 and

respondent’s I.R.C. § 6861 jeopardy assessment and

immediate collection action against him, petitioner has

still failed to file any 1994 federal income tax return

reflecting his illegal income. 

am). Petitioner fraudulently failed to file a

federal income tax return for the taxable year 1994. 

an). All of the underpayment of tax required to

be shown on petitioner’s federal income tax return for

the taxable year 1994 is due to fraud. 

On November 21, 1996, the Court served its notice setting

this case for trial at the Court's April 28, 1997, Tampa,

Florida, trial session. The notice setting the case for trial,

in pertinent part, states: “YOUR FAILURE TO APPEAR MAY RESULT IN

DISMISSAL OF THE CASE AND ENTRY OF DECISION AGAINST YOU. * * * 

YOUR FAILURE TO COOPERATE MAY ALSO RESULT IN DISMISSAL OF THE

CASE AND ENTRY OF DECISION AGAINST YOU.” 

On December 9, 1996, the Court filed respondent's motion for

judgment on the pleadings, in which respondent moved, "pursuant

to the provisions of Tax Court Rule 120", for "an adjudication of

this case in respondent's favor, based upon the respondent's

pleadings as deemed admitted." On December 12, 1996, the Court

ordered petitioner to file, on or before January 10, 1997, a

response to respondent's motion. The Court has never received a

response from petitioner to respondent's motion. 
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On February 26, 1997, the Court issued an order converting

respondent’s motion to a motion for partial summary judgment,

ordered respondent, on or before March 21, 1997, to file a

supplement in support of respondent’s motion, and ordered the

motion set down for a hearing on the opening day of the Court’s

April 28, 1997, Tampa trial session. Pursuant to a timely

extension request, which the Court granted, respondent, on

March 28, 1997, filed a memorandum in response to the Court’s

order of February 26, 1997, a copy of which memorandum was served

on petitioner. Respondent’s memorandum specifically addressed

the concerns that had led the Court to convert respondent’s

motion for judgment on the pleadings to a motion for partial

summary judgment, and concluded that, by reason of petitioner’s

deemed admissions, there were no remaining genuine issues of any

material facts, and that summary judgment should be granted in

favor of respondent on all issues in this case.

On April 9, 1997, respondent served petitioner a copy of

respondent’s trial memorandum, which stated in part:

Respondent’s service of this trial memorandum will

constitute further notice to petitioner that respondent

may also move for entry of decision against petitioner

as to the tax and penalties at the April 28, 1997,

trial session based on the presumptive correctness of

the notice of deficiency, on respondent’s motion for

summary judgment and on the continued failure to

participate or cooperate in preparing the case for

trial or to participate in any manner in the trial of

this case. * * * 

 * * * * * * *
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4. A party may be defaulted for failure to comply

with the Rules of the Court or a failure to properly

prosecute his case. T.C. Rule 123(a). Additionally,

respondent may be entitled to a decision under Rule

123(a) that includes additions to the tax for fraud

when the taxpayer fails to appear at trial, or to

cooperate in preparation of the case for trial, and

respondent’s pleadings allege specific facts sufficient

to sustain a finding of fraud. Smith v. Commissioner,

91 T.C. 1049, 1052 (1988), aff’d, 926 F.2d 1470 (6th

Cir. 1991). 

Petitioner did not appear at the hearing on April 28, 1997. 

At the call of the case from the calendar, respondent’s counsel

made an oral motion for entry of decision in favor of respondent

because of petitioner’s failure properly to prosecute. Pursuant

to the Court’s request at the calendar call, on May 5, 1997,

respondent filed a written motion for entry of decision in favor

of respondent, asserting that none of respondent’s

correspondence, motions, or other pleadings mailed to petitioner

has been returned to respondent, that petitioner, despite his

petition invoking the jurisdiction of this Court, had made no

attempt to cooperate with respondent, to seek documents from

respondent, to assist in the preparation of this case for trial,

to respond to any of respondent’s motions, to respond to any of

the Court’s orders, to file a trial memorandum, or to move to

continue the case, and that petitioner failed to appear and

prosecute his case at the April 28, 1997, trial calendar for the

hearing on respondent’s motion, despite respondent’s attempted

contacts with and warnings to him, in violation of the Court’s
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Rules and the Court’s express admonishments as contained in its

November 21, 1996, notice setting this case for trial. 

All material allegations in the petition have been denied in

respondent’s answer. No issues have been raised as to petitioner

upon which the burden of proof is on respondent except the fraud

issue, and respondent has not conceded any error assigned in the

petition. 

Discussion

The failure of a party to appear at trial or other hearing

may result in an entry of decision against such party. Rule 123

provides, in part:

(a) Default: If any party has failed to plead or

otherwise proceed as provided by these Rules or as

required by the Court, then such party may be held in

default by the Court either on motion of another party

or on the initiative of the Court. Thereafter, the

Court may enter a decision against the defaulting

party, upon such terms and conditions as the Court may

deem proper, or may impose such sanctions (see, e.g.,

Rule 104) as the Court may deem appropriate. * * * 

(b) Dismissal: For failure of a petitioner

properly to prosecute or to comply with these Rules

or any order of the Court or for other cause which the

Court deems sufficient, the Court may dismiss a case

at any time and enter a decision against the

petitioner. * * * [Fn. ref. omitted.]

Petitioner made no attempt to contact the Court upon his

failure to appear. Accordingly, we sustain respondent’s

determinations as to the deficiency and the estimated tax penalty

pursuant to section 6654 on the ground that petitioner has
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defaulted. See, e.g., Smith v. Commissioner, 91 T.C. 1049, 1052

(1988), affd. 926 F.2d 1470 (6th Cir. 1991). 

Respondent also determined that petitioner is liable for an

addition to tax for fraud for the year in issue. When a taxpayer

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

decision “is appropriate upon a determination in our `sound

judicial discretion’ that the pleadings set forth sufficient

facts” to support a finding that the taxpayer fraudulently

underpaid his taxes. Smith v. Commissioner, supra at 1058-1059;

see also Bosurgi v. Commissioner, 87 T.C. 1403, 1408 (1986);

Berkshire v. Commissioner, T.C. Memo. 1997-258. 

Petitioner is deemed to have admitted facts sufficient to

establish his underpayment of Federal income tax for 1994. See

respondent’s answer, subparagraphs 7 o) through 7 ac), supra pp. 

4-6, establishing that petitioner had unreported taxable income

of $61,750, and subparagraph 7 ad), supra p. 7, establishing

that, as a result of the foregoing, petitioner had a deficiency

in Federal income tax of $24,002 for the taxable year 1994. 

Moreover, petitioner is deemed to have admitted that his failure

to file a Federal income tax return, reporting his taxable income

for 1994, was with the fraudulent intent to evade payment of his

Federal income tax for 1994. See the well-pleaded facts

concerning petitioner’s efforts to conceal and evade his tax

liability alleged in respondent’s answer, subparagraphs 7 a)

through t), and 7 ab) through an), supra pp. 3-5, 6-7,
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respectively. Finally, petitioner repeatedly failed to comply

with the Court’s pretrial order or to respond to any of the

Court’s other orders and failed to appear for the scheduled

hearing on respondent’s prior motion--additional indications of

deliberate efforts by petitioner to conceal the facts concerning

his tax liability. See Thornton v. Commissioner, T.C. Memo.

1995-219. 

The foregoing circumstances and above-pleaded admitted facts

clearly establish that petitioner fraudulently underpaid his 1994

Federal income tax. We are therefore satisfied that the

fraudulent failure to file penalty under section 6651(f) for 1994

should be sustained by entry of an order granting respondent’s

motion for entry of decision against petitioner pursuant to Rule

123. That order will render moot respondent’s prior motion. 

To reflect the foregoing,

 An order and decision will

 be entered for respondent.