T.C. Mem o. 2 01 4- 18

UNITED STAT ES TAX COURT JOHN M. POTTER, Pet it io ne r v. COMM ISSI ONER OF INTERNAL REVENUE, Resp on de nt

Doc ke t No . 10 73 0- 12 . Fil edJan ua ry 27 , 20 14 . St ep he n J . Dun n, fo r pe ti ti on er. Jo hn W . Ste ve ns , forres po nd en t.

MEMORANDUM OPINION LAUBER, Ju dg e: The In te rn al Rev enue Serv ic e (IR S o r res po nd en t) de te rm in edde fic ie nc ie s, ad di ti on s t o t ax , andpe na lt ie s i n the fol lo win g a m ou nt s with re sp ectto pe ti ti on er’s i nd iv idua l Fe de ral in co m e ta x l iabi li ti es forth e ta x y ears 20 02 , 20 03 , 20 04 , and20 05 :- 2 -

[* 2] Year Defi ci en cy Add it io n t o t ax se c. 66 51 (a)( 1) Frau d p en al ty

se c. 66 63 20 02 $9 4,2 14 $2 3,5 54 $7 0,6 61 20 03 25 ,09 3 3,7 64 69 ,36 3 20 04 --- --- 44 ,09 9 20 05 74 ,36 9 --- 55 ,77 7 Bec au se pe ti ti on er d oe s n otdi sp ut e th e am ou nt s o f th e p ro po se d d efi ci en ci es , th e pr in ci pa l i ss ue forde ci si on is whet he r pe ti ti on er i s l iabl e fo r th e fraudpe na lty un de r se ct io n 6 66 3 fo r eac h o f th e y ears at i ss ue . W e m us t al so de te rm in e 1 whe th er p et it io ne r 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 02 an d 2 00 3. Bac kg ro un d Thi s ca se was s ub m it te d fu ll y st ip ul at edun de r Ru le 12 2. Th e st ip ul at ed fact s an d re la te d e xh ib it s ar e in co rp or at edhe rei n b y th is refe ren ce. Whenhe fil ed hi s p et it io n, p et it io ne r res id edinMi ch ig an . Pet it io ne r own edan d o pe rat eda “ ge nt le m en ’s club,” Po tt er’s Pub, In c., du rin g the tax y ears at i ss ue . Pot te r’s Pub was a cas h- ba se d b us in es s tha t d eri ve d All st atut ory

refe ren ces are t o the Int ern al Rev enue Co de as i n e ffec t fo r th e 1 ta x years a t i ss ue . All ru le refe ren ces are t o the Tax C ourt Rul es of P ract ic e an d Pro cedur e. All do ll ar am ou nt s h av e b eenrou nd edto th e n eare stdo ll ar.- 3 -

[* 3] rece ip ts fro m

foo d anddri nkch arg es runth ro ug h the cas h re gi st er, d oo r co ve r ch arg es , juk e b ox m on ey s, p oo l t ab le rece ip ts , andm on ey s p ai d t o the pub b y th e da nc ers forth e p riv il eg e o f “ da nc in g.” Pet it io ne r was th e p res id en t an d s ol e own er o f Po tt er’s Pub. Fo r eac h year atis su e h e fi le d, an d s ig ne d a s p res id en t, a Fo rm 11 20 , U.S. Corp or at io n In co m e Tax Return, fo r Po tt er’s Pub. Th os e returns rep orte d l os se s fo r 20 02 an d 2 00 3 a ndzero tax ab le in co m e fo r 20 04 an d 2 00 5. Pet it io ne r fi le d a n i nd iv idua l i nc om e ta x re turnforeach y ear a t i ss ue , bu t hi s re tu rn s fo r 20 02 an d 2 00 3 wer e unt im el y . For 2 00 2 p et it io ne r’s Fo rm 10 40 , U.S. Ind iv idua l In co m e Tax Return, was si gn edby him on Marc h 1 , 20 04 , and rece iv edby resp on de nton Apri l 2 6, 2 00 4. Fo r 20 03 pe ti ti on er’s Fo rm 10 40 was si gn edby him

an d h is return p rep areron Decem be r 31 , 20 04 , andrece iv edby res po nd en t o n F eb ru ary 7, 2 00 5. Pe ti ti on er re po rte d o n h is in di vi du al returns no wag es , di vi de nd s, o r ot he r in co m e fro m Po tt er’s Pub fo r an y

of t he y ears at i ss ue . InDecem be r 20 06 IRS s pe ci al ag en ts en ga ge d i n a n u nd erco ve r in ve st ig ati onof P ot te r’s Pub, p os in g a s b uyers i nt eres te d i n a cqui rin g the bu si ne ss . Peti ti on er as su redth e ag en ts th atPo tt er’s Pub was m uc h m or e p ro fit ab le th anitap pe ared . He exp la in edth athe de po si te d i n the co rp or at e acc ou nton ly eno ug h o f th e b us in es s re ve nu es to co ve r it s ex pe ns es an d tha t h e wir edth e b al an ce o f it s rev enue s t o h is pe rs on al ba nkacco un t i n F lo rid a. Thes e wir e tr an sf ers were- 4 -

[* 4] st ru ctur edinam ou nt s l es s tha n $ 10 ,00 0 t o a vo idrep orti ng ob li ga ti on s b y th e ba nkto th e IRS . In re al ity , pet it io ne r to ldth e ag en ts , Pot te r’s Pub g ro ss edm or e 2 th an$1 m il li on an nu al ly andhe to okho m e b etween$4 00 ,00 0 a nd$5 20 ,00 0 e ach y ear. Pe ti ti on er s ho wedth e ag en ts cla nd es ti ne sal es led ge rs for20 03 an d 2 00 4 th atsupp orte d the gro ss rece ip ts he cla im ed , ackno wled gi ng th atitm ig htha ve be enun wis e to m ai nt ai n d oc um en tary ev id en ce o f hi s s ki m

min g. Dur in g asubs eque ntsea rch of P ot te r’s Pub, IR S ag en ts sei zedup ward s o f $2 00 ,00 0 i n c as h a ndob ta in edth e se t o f cl an de st in e sa le s l ed ge rs th attra ck edit s da il y rece ip ts . Thes e le dg ers co nf irmed th atPo tt er’s Pub’s an nu al rece ip ts for 20 02 -0 5 wer e v as tl y

inex ces s o f th e am ou nt s tha t p et it io ne r ha d re po rte d t o the IRS. Th e d iff

eren ce b etweenit s ac tu al gro ss rece ip ts an d the gro ss rece ip ts rep orte d o n the co m

pa ny’ s Fo rm s 1 12 0 fo r th os e y ears ex ceed ed$2 m il li on . Afte r th e se arch of P ot te r’s Pub, wh enhe kn ew he was u nd er cr im in al in ve st ig at io n, p et it io ne r pr ov id edhi s ac co un tantad di ti on al ba nkacco un t i nf or m at io n fo r th e 2 00 3- 05 tax y ears . His a cco un tantus edth is in fo rm at io n t o fi le am en de d F ed eral in co m e ta x re tu rn s fo r th os e y ears , bo th for Po tt er’s Pub andfor Fed eral law re qu ire s fi na nc ia l i ns ti tu ti on s t o re po rt c urren cy tra ns act io ns in 2 ex ces s o f $1 0,0 00 as we ll as m ul ti pl e cu rren cy

tra ns act io ns th atag gr eg at e m or e th an$1 0,0 00 ina si ng le day . Thes e tr an sa ct io ns are re po rte d t o the IRS o n C ur ren cy Tran sa ct io n R ep orts . See 3 1 C .F.R. se c. 10 3.2 2 (2 00 0) .- 5 -

[* 5] pe ti ti on er i nd iv idua ll y . (Pet it io ne r di d n otfil e am en de d re tu rn s fo r hi m se lf o r fo r Po tt er’s Pub fo r 20 02 .) The IR S as se ss edad di ti on al in co m e ta x andad di ti on s to tax on th e b as is of t he am ou nt s s ho wn o n the am en de d re tu rn s fo r 20 03 -0 5. InJan uary

20 09 pe ti ti on er was cri m in al ly charg edwith e ig htco un ts un de r se ct io n 7 20 6( 1) an d (2 ) fo r m ak in g a ndsubs cri bi ng fal se tax returns , andfor as si st in g i n the pre pa rat io n o f fal se tax returns , forhi m se lf a ndPo tt er’s Pub. In May 200 9 p et it io ne r pl ead edgu il ty to o ne co un t o f m ak in g andsubs cri bi ng a fal se Fo rm 11 20 on be ha lf o f Po tt er’s Pub fo r 20 02 . Purs ua ntto hi s p le a, pe ti ti on er was se nt en cedto 18 m on th s’ pri so n t im e an d s up erv is edrel eas e fo r on e y ear. He was al so ord eredto pa y

res ti tu ti on of $ 40 0,0 00 . Inth e fac tu al ba si s fo r hi s g ui lty pl ea, p et it io ne r adm it te d u nd er p en al ti es of pe rjury tha t h e wil lfu ll y

subm it te d fa ls e ta x re tu rn s fo r Po tt er’s Pub fo r th e 2 00 2- 05 tax y ears ; tha t h e d idno t b el ie ve th os e returns to be tru e an d c orrectas t o e ve ry m at eri al m at te r; andth athe ha d fa ls el y subs cri be d tho se returns with the sp eci fic in te ntto vi ol at e th e la w. Duri ng hi s cr im in al sen te nc in g p et it io ne r st at ed : “ I adm it te d I f

al si fie d my

returns an d s o fo rth , andit[ha s] cau se d m e a l otof pr ob le m s.” InApri l 2 00 9 p et it io ne r si gn ed , inhi s capa ci ty as pr es id en t an d s ol e o wne r of Pot te r’s Pub, a F orm

87 0, Waiv er o f Res tri ct io ns on Ass es sm en t an d C ol le ct io n- 6 -

[* 6] of De fic ie nc y

inTax andAccep tanc e o f Ove ras se ss m en t. He the reb y ag reed th at , fortax y ears 20 02 -0 5, Po tt er’s Pub was li ab le fortax de fic ie nc ie s (i n a dd it io n to th os e p rev io us ly col le ct ed ) in ex ces s o f $3 40 ,00 0 a ndforfrau d p en al ti es un de r se ct io n 6 66 3 i n e xc es s o f $2 50 ,00 0. Dis cu ss io n A. Frau d P en al ty

“ If an y pa rt o f an y

un de rp aym en t o f ta x re qu ire d t o b e sh own on a return i s du e to frau d,” sec ti on66 63 (a) i m po se s a p en al ty of 75 % of t he po rti on of the un de rp aym en t due to frau d. Re sp on de ntha s the bu rd enof p ro vi ng frau d, an d h e m us t p ro ve itby clearan d c on vi nc in g e vi de nc e. Sec. 7 45 4( a); Ru le 14 2( b) ; Ri ch ard so n v . Commis si on er, 5 09 F.3d73 6, 7 43 (6t h C ir. 2 00 7) , aff’g T.C. Mem o. 20 06 -6 9. To su st ai n h is bu rd en , res po nd en t m us t es tabl is h two el em en ts : (1 ) th at th ere was so m e und erp aym en t o f ta x fo r eac h t ax ab le y ear a t i ss ue ; an d (2 ) th atat le as t s om e p orti on of t he un de rp aym en t fo r eac h year was du e to frau d. Heb ran k v. Co m m is si on er, 8 1 T.C. 6 40 , 64 2 (1 98 3) . If a fr au d p en al ty is s ou gh t fo r m ul ti pl e ta x years, re sp on de nt ’s bu rd enof pr ov in g fr au d “ ap pl ie s s ep arat el y foreach of t he y ears .” Vano ve r v. C omm is si on er, T.C. Mem o. 2 01 2- 79 , 10 3 T.C.M . (CCH) 1 41 8, 1 42 0 (quo ti ng Tem pl e v . Co m m is si on er, T.C. Mem o. 2 00 0- 33 7, af f’d, 62 Fed . App x. 6 05 (6t h C ir. 2 00 3) ).- 7 -

[* 7] If res po nd en t p ro ve s tha t a p orti on of a n u nd erp aym en t i s at tri bu tabl e to frau d fo r a p art ic ul ar y ear, the n “ th e en ti re u nd erp aym en t s ha ll be tre at edas a ttrib ut ab le to frau d” un le ss th e ta xp ay er s ho ws, b y a pr ep on de ran ce o f th e ev id en ce, tha t so m e p orti on was n otso att rib ut ab le . Sec. 6 66 3( b) . Pet it io ne r ha s co nc ed edth e fi rs t el em en t o f th e fraudpe na lty , nam el y , th at he un de rp ai d h is in di vi du al in co m e ta x l iabi li ty for eac h t ax y ear a t i ss ue . Pet it io ne r ha s s ti pu late d the am ou nt s o f un rep orte d i nc om e d et erm in edby res po nd en t fo r 20 02 -0 5 a s wel l as th e ta x d efi ci en cy for each y ear. We acco rd in gl y

tu rnto th e se co ndele m en t o f th e p en al ty, frau du le ntin te nt . 3 Frau d i s i nt en ti on al wron gd oi ng de si gn edto ev ad e ta x b el ie ve d t o b e o win g. Neel y v. Co m m is si on er, 1 16 T.C. 79 , 86 (20 01 ). The ex is te nc e o f frau d i s a que sti onof f actto be res ol ve d upo n c on si de rat io n o f th e en ti re re co rd . Esta te of Pi tt ardv. Co m

m is si on er, 6 9 T.C. 3 91 , 40 0 (1 97 7) . Frau d i s n otto be pre su m edor ba se d upo n m ere s us pi ci on . Petz ol dtv. Co m m is si on er, 9 2 T.C. 6 61 , 69 9- 70 0 Altho ug h p et it io ne r st ip ul at edth e co rrec tn es s o f th e am ou nt s re sp on de nt 3 de te rm in edas t ax de fic ie nc ie s fo r 20 02 -0 5, h e co nt en ds th atass es sm en t o f th es e am ount s i s b arre d b y

th e th ree- y ear p eri odof l im it at io ns insec . 65 01 (a). Be cau se we co nc lu de th atpe ti ti on er’s und erp aym en ts were due to frau d, the re i s n o p eri od of li m it at io ns , andth e ta x fo r 20 02 -0 5 “ m ay be ass es se d * * * at a ny tim e.” Sec . 65 01 (c)( 1) . Res po nd en t h as adva nc edalt ern at iv e th eo rie s o f li ab il ity as t o the ap pl ic ab le pe rio d o f li m it at io ns . Becau se we ho ldth atall of p et it io ne r’s un de rpa ym en ts were at tri bu tabl e to frau d, we n eedno t ad dr es s the se alt ern at iv e arg um en ts .- 8 -

[* 8] (19 89 ). Howev er, b ecau se di rectpro of of atax pa y er’s i nt en t i s ra rel y av ai labl e, frau du le ntin te ntm ay be est ab li sh edby circu m st an ti al ev id en ce. Gro ss m anv. Co m

m is si on er, 1 82 F.3d27 5, 2 77 -7 8 (4 th Cir . 19 99 ), aff’g T.C. Mem o. 1 99 6- 45 2. Re sp on de ntsat is fie s h is bu rd enof p ro of by sho win g tha t “ th e ta xp ay er i nt en de d t o e va de tax es kn own to be owi ng by con du ctin te nd edto co nc eal , m is le ador o th erwi se pre ve ntth e co ll ect io n o f ta xe s.” Pa rk s v . Co m m is si on er, 9 4 T.C. 6 54 , 66 1 (1 99 0) . The t ax pa y er’s en ti re co ur se of c on du ct m ay be ex am in edto est ab li sh th e requi si te in te nt , andanin te ntto m is le adm ay be in ferr edfro m

a pa tt ernof c on du ct . W eb b v . Commis si on er, 3 94 F.2d36 6, 3 79 (5 th Cir . 19 68 ), aff’g T.C. Me m o. 1 96 6- 81 ; St on e v . Comm is si on er, 5 6 T.C. 2 13 , 22 4 (1 97 1) . Ci rcu m st an ces th atm ay

in di cat e frau du le ntin te nt , comm on ly referre d t o a s

“ba dg es of f

rau d,” in cl ud e b utare n otli m it edto : (1 ) un de rs ta ti ng in co m e; (2) m ai nt ai ni ng in ad equa te reco rd s; (3) gi vi ng im pl au si bl e o r in co ns is te nt ex pl an at io ns of b eh av io r; ( 4) co nc eal in g i nc om e o r as se ts ; (5 ) fai li ng to co op erat e with t ax au th or it ie s; (6) en ga gi ng inil le ga l ac ti vi ti es ; (7 ) pr ov id in g i nc om pl et e o r m is le ad in g i nf

orm at io n t o o ne ’s tax pre pa rer; (8) lac k o f cre di bi li ty of th e ta xp ay er’s t es ti m on y ; (9 ) fi li ng fal se do cu m en ts , in cl ud in g fa ls e in co m e ta x returns ; (1 0) fai li ng to fil e ta x re tu rn s; an d (1 1) de al in g i n c as h. Sp ie s v . Uni te d- 9 -

[* 9] Sta te s, 3 17 U.S. 49 2, 4 99 (19 43 ); M or se v. Co m m is si on er, T.C. Mem o. 2 00 3- 33 2, 8 6 T.C.M . (CCH) 6 73 , 67 5, af f’d, 41 9 F .3d82 9 (8 th Cir . 20 05 ). No s in gl e fact or is di sp os it iv e; ho wev er, the ex is te nc e o f se ve ral fact or s “ is pe rs ua si ve ci rcu m st an ti al ev id en ce o f frau d.” Vano ve r v. C omm is si on er, 1 03 T.C.M. (CCH) at14 20 -1 42 1. So m e fac to rs ha ve no ap pl ic at io n h ere. Fo r ex am pl e, be cau se th is cas e was subm it te d fu ll y

st ip ul at ed , pet it io ne r ha d n o o ccas io n t o t es ti fy an d h is cred ib il ity can no t b e ev al ua te d. Othe r fac to rs m ay be reg ard edas n eu tra l. Aft er tho ro ug h rev ie w of the reco rd , we con cl ud e o n b al an ce tha t the “ba dg es of f rau d” ov erwh el m in gl y

de m on strat e th atpe ti ti on er ac te d wi th frau du le ntin te ntforeach ta x year atis su e. 1. 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 m ul ti pl e 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 otsat is fact or il y ex pl ai ne d. Van ov er v . Comm is si on er, 1 03 T.C.M. (CCH) a t 1 42 1. Pe ti ti on er adm it te d i n h is 20 09 gu il ty ple a th athe subs tant ia ll y un de rrep orte d the in co m e o f Po tt er’s Pub fo r 20 02 -0 5. He u nd erre po rte d thi s i nc om e b ot h t o e va de th e co rp or at e-l ev el in co m e ta x a ndto co nc eal th e fac t tha t h e was sk imm in g h un dr ed s- 10 -

[* 10 ] of t ho us an ds of d ol lars of c or po rat e in co m e an nu al ly int o h is pe rs on al ba nk acco un t. Pet it io ne r ha s l ik ewis e st ip ul at edth at , foreach y ear a t i ss ue , he s ub st an ti al ly un de rrep orte d h is ownin co m e o n h is Fo rm s 1 04 0. Pe ti ti on er re po rte d n o i nc om e wha ts oe ve r fro m

Po tt ers ’s Pub forth es e y ears . By om it ti ng th e in co m e h e sk imm edfro m

Po tt er’s Pub a ndrep orti ng no di vi de nd s, wag es , or o th er i nc om e fro m hi s b us in es s, p et it io ne r subs tant ia ll y un de rs ta te d h is in co m e fo r eac h year at is su e. He has no t p ro vi de d asat is fact ory ex pl an at io n o f th e und ers ta te m en ts ; 4 rathe r, pe ti ti on er h as ackno wled ge d tha t h e in te nt io na ll y un de rrep orte d h is in co m e. Thi s fa ct orweig hs he av il y infav or of f in di ng frau du le ntin te nt . 2. Mai nt ai ni ng Ina de qu at e Rec or ds Frau du le ntin te ntcanbe in ferr edfro m a fai lure t o m ai nt ai n a de qu at e b oo ks an d re co rd s, i nc lu di ng th e m ai nt en an ce o f fal se bo ok s an d re co rd s. See Ark. Oi l & Gas , Inc . v. Co m

m is si on er, T.C. Mem o. 1 99 4- 49 7, 6 8 T.C.M . (CCH) 8 87 , 89 1. The reco rd s tha t p et it io ne r m ai nt ai ne d, fo r hi m se lf a ndPo tt er’s Pub, wer e b ot h On au di t re sp on de ntde te rm in edno de fic ie nc y for20 04 on th e b as is of p et i- 4 ti on er’s am en de d 2 00 4 re tu rnan d s m al le r de fic ie nc ie s fo r 20 03 an d 2 00 5 o n the ba si s o f pe ti ti on er’s am en de d re tu rn s fo r th os e y ears . In as cert ai ni ng whet he r pe ti ti on er h adfrau du le ntin te nt , ho wev er, we co ns id er h is be ha vi orwhen he fil ed hi s o rig in al returns . See Van ov er v . Comm is si on er, 1 03 T.C.M. (CCH) a t 1 42 3. Pet it io ne r’s or ig in al returns subs tant ia ll y un de rs ta te d h is in co m e fo r al l fo ury ears .- 11 -

[* 11 ] in ad equa te an d fr au du le nt . Peti ti on er k ep t two s et s o f bo ok s, i nc lu di ng cl an de st in e sa le s l ed ge rs , des ig ne d t o h id e co rp or at e in co m e an d c on ceal th e fac t th athe was s ki m

m in g m as si ve am ou nt s o f cas h i nt o h is pe rs on al bankacco un t. Thi s d oubl e b oo kk eep in g p ro vi de s cl ear c irc um st an ti al ev id en ce o f frau du le nt in te nt . See Sp ie s, 3 17 U.S. at 4 99 ; M ed li n v . Comm is si on er, T.C. Mem o. 2 00 3- 22 4, af f’d, 13 8 F ed . App x. 2 98 (11 th Cir . 20 05 ). 3. Co nc eal in g In co m e o r Ass et s A wil lfu l at te m

ptto ev ad e ta x m ay

be in ferr edfro m

a ta xp ay er’s co nc eal m en t o f in co m e o r as se ts . Spi es , 31 7 U.S. at49 9. Pe ti ti on er co nc eal ed Po tt er’s Pub’s i nc om e b y m ai nt ai ni ng two set s o f bo ok s. He co nc eal edhi s o wn in co m e, whi chhe sk imm edfro m Po tt er’s Pub, b y

wiri ng cas h t o h is pe rs on al ba nk acco un t. The am ou nt s h e wir edwere k ep t b el ow $ 10 ,00 0 i n o rd er t o a vo idba nk rep orti ng to th e IRS . This pa tt ernof s tru ctur in g b an k d ep os it s i s cl earl y em bl em at ic of a n i nt en t t o c on ceal in co m e. See M cCl el lan v . Comm is si on er, T.C. Mem o. 2 01 3- 25 1, at*2 7- *2 8. By sy st em at ic al ly m an ip ul at in g b ot h h is bu si ne ss an d p ers on al in co m e, pe ti ti on er was ab le to accu m ul at e subs tant ia l as se ts (in cl ud in g c as h) th athe li ke wis e co nc eal ed .- 12 -

[* 12 ] 4. Pro vi di ng Inc om pl et e o r Mi sl ead in g In fo rm at io n Evi de nc e th ata ta xp ay er p ro vi de d i nc om pl et e o r mis le ad in g i nf

orm at io n t o hi s re tu rnpre pa rer i s fu rth er ci rcu m st an ti al ev id en ce o f frau d. Mo rs e v . Co m m is si on er, 4 19 F.3dat 8 33 ; Van ov er v . Comm is si on er, 1 03 T.C.M. (CCH) a t 10 42 . A tax pa y er ac ts frau du le nt ly whe n h e co nc eal s i nc om e fro m hi s re tu rn pr ep arer . See Ko recky

v. Co m m is si on er, 7 81 F.2d15 66 (11 th Cir . 19 86 ), aff’g T.C. Mem o. 1 98 5- 63 . Pet it io ne r pr ov id edhi s ac co un tantwith a n i ni ti al setof b oo ks an d re co rd s th atwas u se d t o p rep are f al se in di vi du al an d c or

po rat e ta x re tu rn s. Fo r eac h t ax y ear a t i ss ue , pet it io ne r co nc eal edfro m hi s ac co un tantth e se cretsal es led ge rs th at reco rd edPo tt er’s Pub’s ac tu al gro ss rece ip ts . Peti ti on er s ti pu la te d tha t “ atth e ti m e * * * [h e] sub sc rib edor a ss is te d i n the pre pa rat io n o f hi s p ers on al * * * fe de ral in co m e ta x re tu rn s [f

orth e y ears at i ss ue ], he kn ew th atPo tt er’s Pub, In c. was no t rep orti ng all of i ts gro ss rev enue s.” Afte r th e se arch of h is est ab li sh m en t, p et it io ne r pr ov id edhi s ac co un tant with b an k re co rd s tha t wer e u se d t o p rep are a ndfil e am en de d t ax returns for20 03 - 05 . Once afrau du le ntreturn h as be ensubm it te d, h owe ve r, subs eque ntco nduc t, su chas f il in g a m en de d re tu rn s, d oe s n otpu rg e th e o rig in al frau du le ntco nduc t. Bad arac co v. Co m

m is si on er, 4 64 U.S. 38 6, 3 93 -3 94 (19 84 ). Thu s, p et it io ne r’s- 13 -

[* 13 ] in it ia l ac ts of s up pl y in g fa ls e rec or ds to hi s re tu rnpre pa rer fo r 20 02 -0 5 co ns ti tu te cle ar ev id en ce o f hi s fr au du le ntin te nt . 5. Fi li ng Fal se Inc om e Tax Returns Pet it io ne r ha s s ti pu late d tha t the in co m e rep orte d o n h is in di vi du al in co m e ta x re turn s fo r 20 02 -0 5 was un de rs ta te d. Th is is pri m ari ly becau se pe ti ti on er d id no t re po rt a ny div id en d, wag e, or othe r in co m e fro m

Po tt er’s Pub o n h is in di vi du al returns , eve n tho ug h h e kne w lar ge am ou nt s o f su chin co m e ex is te d. He thu s fi le d a fal se in di vi du al in co m e ta x re tu rnfor each y ear. Pet it io ne r al so fil eda fal se co rp or at e ta x re tu rnforeach y ear. Pe ti ti on er pl ead edgu il ty und er s ect io n 7 20 6( 1) to on e co un t o f fi li ng a fal se in co m e ta x return o n b eh al f of

Po tt er’s Pub fo r 20 02 . In h is pl ea ag reem en t h e admitte d tha t he li ke wis e fi le d fa ls e in co m e ta x re tu rn s o n b eh al f of Po tt er’s Pub fo r 20 03 -0 5. Pet it io ne r was th e so le own er o f Po tt er’s Pub a ndth us th e so le be ne fic iary of i ts in co m e. As i ts pre si de nt , he e xe rci se d c om pl et e co nt ro l o ve r it . By

fil in g fa ls e returns forPo tt er’s Pub, p et it io ne r at te m pt edto co nc eal th e fac t tha t h e was week ly ski m

m in g tho us an ds of d ol lars fro m hi s b us in es s. Co ns id eri ng th e o ve ral l pa tt ernof p et it io ne r’s be ha vi or , hi s fi li ng of f al se returns forPo tt er’s Pub furn is he s ad di ti on al cir cu m st an ti al ev id en ce o f frau du le ntin te ntwith re sp ectto hi s in di vi du al returns forth es e y ears .- 14 -

[* 14 ] 6. Ext en si ve Deal in gs inCas h Ext en si ve de al in gs incas h a re a b ad ge of f rau d b ecau se th ey

are i nd ic at iv e of a ta xp ay er’s at te m

ptto co nc eal in co m e an d a vo idscrut in y of h is fin an ces . See Evans v. Co m

mis si on er, T.C. Mem o. 2 01 0- 19 9, 1 00 T.C.M. (CCH) 2 15 , 21 8, aff’d, 5 07 Fed . App x. 6 45 (9t h C ir. 2 01 3) . Frau du le ntin te ntm ay be in ferr edwhen a ta xp ay er h an dl es hi s af

fai rs ina m an ne r de si gn ed“ to av oi d m ak in g the reco rd s us ua l i n tran sa ct io ns of t he ki nd .” Sp ie s, 3 17 U.S. at 4 99 . As a “ ge nt le m en ’s club,” pe ti ti on er’s b us in es s was a cas h- ba se d o pe rat io n. Its sal es rece ip ts were d eri ve d p rin ci pa ll y fro m foo d anddri nkch arg es run th ro ug h th e cas h re gi st er, d oo r co ve r ch arg es , juk e b ox m on ey s, p oo l t ab le rece ip ts , and m on ey s p ai d t o h im

by the da nc ers forth e p riv il eg e o f “ da nc in g.” Pet it io ne r adm it te d tha t h e week ly w ire d l arg e am ou nt s o f th is cas h t o h is pe rs on al ba nkacco un t i n F lo rid a. Thes e wir e tr an sf ers were i nv ari ab ly m ad e inam ou nt s l es s tha n $1 0,0 00 inord er t o a vo idde te ct io n. Du rin g the sea rch of P ot te r’s Pub F ed eral ag en ts sei zedm or e th an$2 00 ,00 0 i n c as h fr om th e p rem is es . Alth ou gh co nduc ti ng a cas h b us in es s d oe s n otne ces sa ril y pro ve frau d, “ [w]henco up le d wi th at te m pt s t o c on ceal tra ns act io ns or a vo idth e requi rem en t o f rep orti ng cas h tra ns act io ns , itbe co m es m or e p ro ba ti ve .” Valb run v . Commis si on er, T.C. Mem o. 20 04 -2 42 , 88 T.C.M. (CCH) 3 85 , 38 7.- 15 -

[* 15 ] Pet it io ne r co nt en ds th athe lac ke d fr au du le ntin te ntbe cau se he is un educ at edan d uns op hi st ic at edan d h adto hi re t ax pro fes si on al s t o fi le hi s pe rs on al an d c or

po rat e ta x re tu rn s. Pet it io ne r’s la ckof e du cat io n a nd so ph is ti cat io n i s i rrel ev an t. Inth is co nt ex t the tax laws he vi ol at edare n ot es ot eri c. Pet it io ne r kn owi ng ly con ceal edm or e th an$2 m il li oninbu si ne ss gro ss rece ip ts inaneffo rt t o e va de tax he kn ew to be owi ng . He was s op hi st ic at ed en ou ghto stru ctur e h is wire tra ns fers inam ou nt s u nd er $ 10 ,00 0 i n the ho pe of es cap in g b an k re po rti ng to th e IRS . Andhe kn owi ng ly fail edto pro vi de hi s t ax pr of es si on al with the cla nd es ti ne sal es led ge rs th athe pe rs on al ly prep aredan d whi chhe kn ew reco rd edth e actua l re cei pt s o f hi s b us in es s. Pet it io ne r as se rts th athe “ wen t t o e xtrao rd in ary le ng th s t o c oo pe rat e wit h th e Gov ern m en t.” Bu t h e b eg anto co op erat e o nl y aft er h e kne w th atth e jig was up . It was on ly after t he sea rch of h is bu si ne ss tu rn edup th e il li ci t s al es led ge rs an d $ 20 0,0 00 inun ex pl ai ne d c as h tha t p et it io ne r pr ov id edhi s ac co un tantwith the bo ok s an d re co rd s n eed edto pre pa re am en de d re tu rn s. Th es e eff orts m ay ha ve he lp edpe ti ti on er i n h is ne go ti at io ns with the Depa rtment o f Ju st ic e in hi s cr im in al- 16 -

[* 16 ] tax cas e. Bu t the y

do no t p ur ge th e fraudul en t i nt en t tha t ac co m pa ni edth e or ig in al fil in g o f hi s fa ls e in di vi du al tax returns for20 02 -0 5. 5 Fi na ll y , pet it io ne r co nt en ds th atres ti tu ti on pa ym en ts he ha s m ad e to th e Uni te d S tate s m

us t b e cre di te d a ga in stan y tax de fic ie nc ie s an d p en al ti es su st ai ne d in th is cas e. Acco rd in g t o p et it io ne r, res po nd en t re cei ve d $ 12 4,3 48 fro m th e sa le of hi s New Orl ean s re si de nc e an d app ro xi m at el y $3 35 ,00 0 fr om

th e sa le of Po tt er’s Pub. He co nt en ds th athe ha s n ev er re cei ve d “ anacco un ti ng of h is res ti tu ti on pa ym en ts .” The am ount s o f res ti tu ti on , if an y , th atpe ti ti on er m ad e aft er fi li ng hi s or ig in al tax returns have no be ari ng on th e is su es curren tl y be fo re the Co urt-- na m el y , th e ta x d efi ci en ci es an d p en al ti es for whi chpe ti ti on er i s l iabl e fo r th e ta x y ears 20 02 -0 5. Th atis no t t o s ay th atpe ti ti on er wi ll no t re cei ve cred it , when res po nd en t p ro ceed s t o c ol le ctth e ta x l iabi li ti es su st ai ne d i n thi s ca se , foran y res ti tu ti on pa ym en ts he ha s m ad e th athave no t b eenpre vi ou sl y acco un te d fo r. Pet it io ne r errs inrel y in g o n Av en el l v . Comm is si on er, T.C. Mem o. 2 01 2- 5 32 , 10 3 T.C.M . (CCH) 1 18 0. Inth atcas e th e ta xp ay er d ep os it edpa ym en ts du e h is co rp or at io n i nt o h is pe rs on al bankacco un t. Inco nc lu di ng th atth e Co m m is si on er fai le d t o p ro ve frau d b y

cle ar an d c on vi nc in g e vi de nc e, we rel ie d o n the tax pa y er’s co op erat io n wi th au th or it ie s (i nc lu di ng hi s v ol un tary di sc lo su re o f anoff

sh or e ba nkacco un t) a ndhi s cr ed ib le tes ti m on y th athi s ac ti on s s te m

m ed , no t fr om

an in te ntto ev ad e ta x, b utfro m anin te ntto sh ie ldhi s co m pa ny’ s as se ts fro m jud gm en t co ll ect io n. Se e id ., 10 3 T.C.M . (CCH) at11 81 -1 18 2.- 17 -

[* 17 ] Bu t s uc h c ol le ct io n m at te rs are g en eral ly notwithi n o urjuri sd ic ti on ina de fic ie nc y

pro ceed in g c omm en cedun de r se ct io n 6 21 3( a). See Abd al lah v . Co m m is si on er, T.C. Mem o. 2 01 3- 27 9, at*3 2- *3 4. B. Sect io n 6 65 1( a)(1 ) Add it io ns to Tax Res po nd en t as se ss edlat e-fi li ng ad di ti on s t o t ax un de r se ct io n 6 65 1( a)(1 ) fo r 20 02 an d 2 00 3. Pe ti ti on er’s Fo rm s 1 04 0 fo r bo th y ears were i nd is pu tabl y fil ed la te . He di d n otfil e h is 20 02 return u nt il Apri l 2 6, 2 00 4, an d h e d idno t fi le hi s 20 03 return u nt il Feb ru ary 7, 2 00 5. Pe ti ti on er i n h is bri efs di d n otad dr es s the la te -fi li ng ad di ti on s t o t ax , andwe de em th is is su e co nc ed ed . See, e.g ., Gm el in v. Co m m is si on er, T.C. Mem o. 1 98 8- 33 8, 5 5 T.C.M . (CCH) 1 41 0, 1 42 1 n .19 (fi nd in g on e o f th e Co m

m is si on er’s arg um en ts to ha ve be enab an do ne d wh enhe fai le d t o ad dr es s i t o n b rie f), aff

’d witho utpubl is he d o pi ni on , 89 1 F .2d28 0 (3 d C ir. 1 98 9) . C. Co nc lu si on Fo r th e rea so ns setforthab ov e, we co nc lu de th atres po nd en t h as est ab li sh ed by clearan d c on vi nc in g e vi de nc e th atpe ti ti on er’s und erp aym en ts of t ax were at tri bu tabl e to frau d fo r th e ta xabl e y ears 20 02 -0 5. Pe ti ti on er h as fai le d t o s ub m it cred ib le ev id en ce s ho win g tha t an y po rti on s o f th es e und erp aym en ts were n otdu e to frau d. Acco rd in gl y , we ho ldth atpe ti ti on er i s l iabl e fo r th e ta x d efi ci en ci es an d- 18 -

[* 18 ] sec ti on 66 63 civ il frau d p en al ti es for20 02 -0 5, an d fo r th e se ct io n 66 51 (a)( 1) lat e-fi li ng ad di ti on s t o t ax for20 02 an d 2 00 3. To re fle ctth e fo reg oi ng , Deci si on wil l b e en te red fo r res po nd en t.