T.C. Mem o. 2 01 5- 17 2

UNITED STAT ES TAX COURT

DONALD HILL AND JUDITH HILL, Pet it io ne rs v. COMM ISSI ONER OF INTERNAL REVENUE, Resp on de nt

Doc ke t No . 29 21 3- 13
. Fi le d S ep te m be r 8, 2 01 5.

Carl D. Gens ib , forpe ti ti on ers . Rac he l L. Sch iff

m an , for res 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) d et erm in edde fic ie nc ie s i n p et it io ne rs ’ Fed eral in co m e ta x a ndrel at edad di ti on s t o- 2 -

[* 2] ta x a ndpe na lt ie s as fol lo ws fo r th e ta x years 2 00 1, 2 00 2, an d 2 00 3: 1 Frau d p en al ty Add it io n t o t ax Year Defi ci en cy se c. 66 63 (a) se c. 66 51 (a)( 1) 20 01 $3 8,8 77 $2 8,5 98 $9 ,53 3 20 02 53 ,44 3 40 ,00 6 13 ,33 5 20 03 25 ,52 3 19 ,14 2 6,3 81 Thi s ca se was c al le d fr om th e cal en dar of

th e Co urt’s New Yo rk(Newark ) tri al ses si on on Feb ru ary 23 , 20 15 . Neithe r pe ti ti on ers no r th ei r co un se l ap pe ared
. Co un se l fo r res po nd en t ap pe aredan d fi le d am ot io n fo r de fau ltun de r Ru le 12 3. Thi s m ot io n re qu es te d t ha t we en te r a d efau ltjud gm en t ag ai ns t p et it io ne rs forth e fu ll am ou nt s o f th e d efi ci en ci es , add it io ns to tax , andpe na lt ie s d et erm in edinth e no ti ce o f de fic ie nc y . On Fe brua ry

23 , 20 15 , we ord eredpe ti ti on ers to sh ow caus e, onor b efo re Mar ch25 , 20 15 , why

res po nd en t’s m ot io n fo r de fau ltsh ou ldno t b e g ran te d. Th is
or de r was serve d o n p et it io ne rs ’ co un se l an d s ep arat el y on pe ti ti on ers at t he ir ad dr es s o f rec or d. Nei th er p et it io ne rs no r th ei r co un se l h as res po nd edto ou r or de r to sh ow caus e.
All st atut ory

refe ren ces are t o t he Int ern al Rev enue Co de ineffe ctforth e 1 ta x years a t i ss ue , andall Ru le refe ren ces are t o t he Tax C ou rt Rul es of P ract ic e an d P ro cedur e. W e ro un d a ll m on et ary am ou nt s t o the ne ares t d ol lar.- 3 -

[* 3] Si nc e fi li ng th ei r pe ti ti on , pet it io ne rs ha ve refu se d t o p art ic ip at e in th is cas e in an y way . They ha ve fai le d t o re sp on d t o n um ero us ord ers of t hi s C ou rt. Th ey fai le d t o app ear f

ortri al . Andth ey

fai le d t o re sp on d t o t he Co urt’s o rd er t o s ho w cau se why th e m ot io n fo r de fau ltsh ou ldno t b e g ran te d. Pe ti ti on ers ha ve adm it te d
orare d eem edto ha ve adm it te d a ll sal ie ntfact s, an d we wi ll acco rd in gl y gra nt res po nd en t’s m ot io n fo r de fau lt
. Bac kg ro un d In20 08 pe ti ti on ers fil edlat e Fed eral in co m e ta x re tu rn s fo r 20 01 , 20 02 , and 20 03 . Thes e returns rep orte d m in im al or n o g ro ss in co m e--$ 8,9 15 for20 01 , $1 ,20 1 fo r 20 02 , andzero for20 03 . On Dece m be r 5, 2 01 3, fo ll owi ng an ex am in at io n, the IRS i ss ue d p et it io ne rs a st atut ory no ti ce o f de fic ie nc y

forall th ree years. 2

The de fen se of t he st atut e o f li m it at io ns m us t b e aff irmativ el y

pl ead ed 2 (wh ic h p et it io ne rs di d n otdo ) an d t hu s the y have co nc ed edan y

ch al le ng e to th e ti m el in es s o f th e n ot ic e o f de fic ie nc y . See Ru le 39 . In an y ev en t, the no ti ce was ti m el y un de r se ct io n 6 50 1( c)(1 ), whi chpro vi de s tha t, “ [i]n t he cas e o f a fal se or frau du le ntreturn wi thth e in te ntto ev ad e ta x, the tax m ay be ass es se d * * * at a ny ti m e.” Eve n i f pe ti ti on ers ’ 20 01 , 20 02 , and20 03 returns ha d n otbe enfrau du le nt , th e n ot ic e o f de fic ie nc y

wou ldst il l h av e b eenti m el y un de r se ct io n 6 50 1( e). Tha t se ct io n p ro vi de s a s ix -y ear p eri odof l im it at io ns wher e th e ta xp ay er o m it s fr om gr os s i nc om e (as pe ti ti on ers di d) anam ou ntth at“ is inex ces s o f 25 pe rcen t o f th e am ou ntof g ro ss in co m e st at edinth e return.” Sec. 6 50 1( e)(1 )(A)(i ).- 4 -

[* 4] The no ti ce d et erm in edde fic ie nc ie s b as edon pe ti ti on ers ’ fai lu re t o re po rt ret ire m en t p la n d is tri bu ti on s tha t the y rece iv edin20 01 , wage s tha t p et it io ne r-wi fe
rece iv edin20 01 an d 2 00 2, an d i nc om e th atpe ti ti on er-h us bandrece iv edas am ortga ge bro ke r in all th ree years. Th e n ot ic e al so de te rm in ed , forall th ree years, l at efil in g a dd it io ns to tax un de r se ct io n 6 65 1( a)(1 ) an d fr au d p en al ti es un de r se ct io n 66 63 (a). Whi le res id in g i n New J ers ey , pet it io ne rs fil eda ti m el y pe ti ti oninth is Co urt. Pet it io ne rs di d n otdi sp ut e th ei r rece ip t o f un rep orte d i nc om e as de te rm in edby resp on de nt , no r di d t he y ex pl ic it ly dis pu te res po nd en t’s d et erm in at io n th atth ey ha d e ng ag edinfrau d. Ra th er, p et it io ne rs all eg edon ly tha t the “ IRS fai le d t o p erm itth e d educ ti on of o rd in ary an d n eces sa ry bu si ne ss ex pe ns es ” an d th atth e “pe na lt ie s i m

po se d wer e im

pr op er an d e xc es si ve .” Pet it io ne rs st at ed , as th e fac ts onwhi chth ey

rel ie d: [The ] ta xp ay ers were p res su redto fil e d el in qu en t re tu rn s b y Rev enue Offi cer Larry

Bel l. Tax pay ers fil edreturns ba se d upo n t ax tra ns cri pt pr ov id edby reven ue off

ic er. Rev enue off

ic er d idno t i nd ic at e th at an y so ur ces of i nc om e h adbe enrep orte d t o t ax pa y er J ud it h Hi ll
. Returns as a dju st edby IRS do no t t ak e in to co ns id erat io n a ll ord in ary an d n eces sa ry

ex pe ns es in cu rredby taxpa y ers to ge ne rat e rev enue s. On Fe brua ry

7, 2 01 4, re sp on de ntfil edanan swe r th atde ni edpe ti ti on ers ’ al le ga ti on s an d m ad e a num be r of “ affi rm at iv e al le ga ti on s” to whi chpe ti ti on ers- 5 -

[* 5] ha ve fai le d t o re pl y . In p arag rap h 8 of t he an swe r, res po nd en t m ad e th e fo ll owi ng all eg at io ns co nc ern in g p et it io ne rs ’ frau du le ntin te nt : a) The pe ti ti on ers frau du le nt ly andwith i nt en t t o e va de tax es forth e ta xabl e y ear 2 00 1, fi le d afal se in co m e ta x re turnforth e y ear 2 00 1 b y fai li ng to in cl ud e ret ire m en t i nc om e rec ei ve d b y pe ti ti on er, Jud it h Hi ll du rin g t he y ear 2 00 1, i n t he am ou ntof $ 11 ,44 7.0 0 fr om th e Gua rd ian In su ran ce an d An nu ity

Co m pa ny. b) The p et it io ne rs frau du le nt ly andwith i nt en t t o e va de tax es forth e ta xabl e y ear 2 00 1, fi le d afal se in co m e ta x re turnforth e y ear 2 00 1 b y fai li ng to in cl ud e th e ta x o n t he pre m atur e d is tri bu ti onfro m a ret ire m en t p la n re cei ve d b y pe ti ti on er, Jud it h Hi ll du rin g the y ear 20 01 , inth e am ou ntof $ 1,1 45 .00
. c) The pe ti ti on ers frau du le nt ly andwith i nt en t t o e va de tax es forth e ta xabl e y ears 20 01 an d 2 00 2, fi le d fa ls e ta x re tu rn s fo r th e y ears 20 01 an d 2 00 2, b y

fai li ng to in cl ud e wag e in co m e rec ei ve d b y pe ti ti on er, Ju di th Hil l dur in g t he y ear 2 00 1, i n t he am ou ntof $ 26 ,06 6.0 0 fr om Nov ot el Pri nc et on an d S il ve r Hot el s Pr in cet on an d dur in g t he y ear 20 02 , inth e am ou ntof $ 19 ,76 8.0 0 fr om Sil ve r Hot el s Pr in cet on . d) Pet it io ne r, Don al d Hi ll fai le d t o m ai nt ai n a de qu at e b oo ks an d in co m e rec or ds forhi s ac ti vi ti es as am ortg ag e b ro ke r. e) Pet it io ne rs frau du le nt ly andwith i nt en t t o e va de tax es forth e ta xabl e y ears 20 01 , 20 02 , and20 03 fil edfal se tax returns for th os e y ears by fail in g t o i nc lu de in co m e rec ei ve d fr om Mo rtg ag e USA. f) Pet it io ne rs frau du le nt ly andwith i nt en t t o e va de tax es forth e ta xabl e y ears 20 01 , 20 02 , and20 03 fil edfal se tax returns for th os e y ears by fail in g t o i nc lu de as i nc om e am ou nt s d ep os it edin to th e pe ti ti on ers ’ bankacco un t.- 6 -

[* 6] Inpa rag rap hs 8(g ), (h ), (i) , and(j) of h is an swe r, res po nd en t p ro vi de d a de ta il edli stof b an k d ep os it s tha t p et it io ne rs m ad e dur in g 2 00 1- 20 03 , all rep rese nt in g c omm is si on s tha t p et it io ne r-h us ba ndrece iv edfro m hi s emplo ym en t as a m ortg ag e b ro ke r. Parag rap h 8 of r es po nd en t’s an swe r m ad e th es e ad di ti on al affirm at iv e al le ga ti on s: (l) Pet it io ne rs Don al d Hi ll an d J ud ith Hi ll ’s frau du le ntom is si on of sp eci fic it em s o f in co m e o n t he ir i nc om e ta x re tu rn s fi le d fo r 20 01 , 20 02 an d 2 00 3 i s a p artof ath ree year pa tt ernof i nt en t t o e va de ta xe s. (m) Pet it io ne rs un de rs ta te d t he ir t ax ab le in co m e o n t he ir i nc om e ta x returns forth e ta xabl e y ears 20 01 , 20 02 an d 2 00 3, i n t he am ou nt s o f $1 38 ,27 0.0 0, $ 18 9,9 16 .00 an d $ 11 3,3 29 .00 , res pe ct iv el y . (n ) Pet it io ne rs un de rs ta te d t he ir i nc om e ta x l iabi li ti es on th ei r in co m e ta x re tu rn s fo r th e ta xabl e y ears 20 01 , 20 02 an d 2 00 3 i n t he am ou nt s of $3 8,1 30 .00 , $5 3,3 41 .00 , $2 5,5 23 .00 , res pe ct iv el y . (o ) Pet it io ne rs ’ fai lu re t o p ro du ce re co rd s o r ot he r in fo rm at io n * * * to res po nd en t i n c on ne ct io n wi th th e ex am in at io n o f th ei r in co m e ta x returns forth e ta xabl e y ears 20 01 , 20 02 an d 2 00 3, was frau du le nt with i nt en t t o e va de tax . (p ) Pet it io ne rs frau du le nt ly, an d wi th in te ntto ev ad e ta x, o mit te d fro m th ei r in co m e ta x re tu rn s fo r th e ta xabl e y ears 20 01 , 20 02 an d 20 03 , in co m e in th e am ou nt s o f $1 50 ,88 3.0 0, $ 20 8,8 59 .00 an d $1 36 ,52 4.0 0, re sp ect iv el y . (q ) Pet it io ne rs frau du le nt ly, an d wi th in te ntto ev ad e ta x, o mit te d fro m th ei r in co m e ta x re tu rn s fo r th e ta xabl e y ears 20 01 , 20 02 an d 20 03 , sel f-em

pl oym en t t ax inth e am ou nt s o f $1 2,8 07 .00 , $1 5,1 95 .00 an d $ 13 ,95 9.0 0, re sp ect iv el y .- 7 -

[* 7] Pet it io ne rs di d n otfil e a rep ly to re sp on de nt ’s ans wer, an d t he y ha ve no t ot he rwis e co nt ro ve rte d a ny of th e aff irmativ e al le ga ti on s s etforth th erei n. In de ed , ne ithe r pe ti ti on ers no r th ei r co un se l h as co m m un ic at edwith re sp on de nt ’s cou ns el
orwith t he Co urt s in ce thi s ca se was d oc ke te d. OnSep te m be r 23 , 20 14 , th e Co urt no ti fie d p et it io ne rs th atth is cas e was setfortri al inNew York(NewarkSes si on )
on Feb ru ary 23 , 20 15 . This no ti ce s ta te d: “ The cal en da r fo r th atSes si on wil l b e cal le d at tha t d at e an d t im e, an d t he pa rti es are ex pe ct edto be pre se ntan d t o b e pr ep aredto try the cas e. You r fai lu re t o app ear m ay res ul t i n d is m is sa l o f th e cas e an d e ntry of d eci si on ag ai ns t you.” The Co urt co nc urren tl y

is su eda pr etria l o rd er i n thi s ca se , in fo rm in g t he pa rti es th atth ey

sh ou ld“be gi n d is cu ss in g s ettl em en t an d/ orpre pa rat io n o f a st ip ul at io n o f fac ts as s oo n a s p ract ic ab le ” an d o rd eri ng th at“ al l fa ct s s ha ll be st ip ul at ed(ag reedup on inwrit in g) to th e m ax im um ex te ntpo ss ib le .” The o rd er in fo rm edth e p art ie s tha t “ [i]f a co m pl et e st ip ul at io n o f fac ts is no t re ady for
subm is si on at t he st artof t he tri al * * *, an d i f th e Co urt d et erm in es th atth is is du e to lac k o f co op erat io n b y eit he r pa rty, the Co urt m ay ord er s an ct io ns ag ai ns t the
un co op erat iv e p arty .” The o rd er i nf orm edpe ti ti on ers of t he ir o bl ig at io n t o fi le a pr etria l m em or an du m

with the Co urt an d t o e xc ha ng e wit h re sp on de nt , at l eas t 1 4 da y s b efo re tria l, an y

no n- st ip ul at eddo cum en ts th atth ey ex pe ct edto us e attri al
.- 8 -

[* 8] The p art ie s wer e warn edth at“ [t]he Co urt m ay im po se ap pr op ria te san ct io ns , in cl ud in g d is m is sa l, fo r an y un ex cu se d fa il ur e to co m pl y with t hi s Ord er.” By let te r da te d Oct ob er 2 2, 2 01 4, re sp on de ntin vi te d p et it io ne rs to a co nf eren ce atres po nd en t’s Newark o ffi ce. The pu rp os e o f th is m eet in g, sc he du le d fo r Nov em

be r 18 , 20 14 , was t o d is cu ss th e cas e, ex ch an ge rel ev an t in fo rm at io n, an d b eg in to pre pa re the cas e fo r tr ia l. Nei th er p et it io ne rs no r th ei r co un se l re pl ie d t o t hi s l et te r or att en de d t he co nf

eren ce. On Dec em

be r 8, 2 01 4, re sp on de ntserve d o n p et it io ne rs reque st s fo r adm is
si on . Thes e reque st s as ke d p et it io ne rs to admitth e fac ts , as s etforth ab ov e, th at res po nd en t h adaffi rm at iv el y all eg edinhi s an swe r. Thes e reque st s ad vi se d p et iti on ers th at , “pu rs ua ntto Tax C ou rt Rul e 9 0, a wri tt enan swe r to th es e reque st s m us t b e fi le d wi thth e Tax Co urt an d aco py serv edon * * * [r es po nd en t’s
co un se l] with in 30 da y s af te r se rv ic e o f th es e reque st s fo r adm is si on .” Neit he r pe ti ti on ers no r th ei r co un se l re sp on de d t o t hi s re qu es t. As ares ul t, al l o f th e affi rm at iv e al le ga ti on s s etforth inres po nd en t’s an swe r, in cl ud in g h is all eg at io ns of frau d, ar e d eem edadm it te d u nd er Ru le 90 (c). 3 Ru le 90 (c) p ro vi de s tha t “ [e]achm at te r is de em edadm it te d unl es s, wi th in 3 30 da y s af

te r se rv ic e o f th e reque st* * *, the party to wh om th e reque stis di rect ed se rv es up on th e reque st in g p arty : (1 ) A writ te n a ns wer s pe ci fic al ly adm it ti ng or de nyin g t he m atte r in vo lv edinwho le or i n p art , or a ss ert in g t ha t i t ca nn otbe (co nt in ue d...)- 9 -

[* 9] Res po nd en t al so serve d o n p et it io ne rs a reque stforpro du ct io n o f do cu m en ts . Whe n p et it io ne rs ig no redth is reque st , res po nd en t m ov edto co m pe l p et iti on ers to pro du ce the se do cu m en ts . On Ja nu ary 14 , 20 15 , th e Co urt g ran te d re
sp on de nt ’s m ot io n, o rd eri ng pe ti ti on ers to pro du ce the reque st eddo cu m en ts or f il e ap pr op ria te ob

jecti on s b y

Janua ry 27 , 20 15 . W e warn edpe ti ti on ers th at , if the y di d “ no t fu ll y

co m pl y with t he pro vi si on s o f th is ord er, the Co urt wi ll be stro ng ly in cl in edto im

po se san ct io ns pu rs uantto Tax C ou rt Rul e 1 04 , whi chm ay in cl ud e de em in g c ert ai n fa ct s t o b e es tabl is he d fo r th e p ur po se of t ria l, o r di sm is sa l o f th is
cas e an d e nt ry

of ade ci si onag ai ns t p et it io ne rs .” Neit he r pe ti ti on ers no r th ei r co un se l re sp on de d t o t hi s o rd er. By ord er d at ed Feb ru ary 23 , 20 15 , we m ad e ab so lu te ou r Ja nu ary 14 , 20 15 , ord er, ru li ng th at ,

“pu rs ua ntto Tax C ou rt Rul e 1 04 (c), p et it io ne rs are d eem edto have no do cu m en ts to supp ort the ir p os it io n o n t he m atte rs th atwere the subjec t o f res po nd en t’s di sc ov ery reque st s, an d t he fact s al le ge d b y res po nd en t as to th es e m at te rs sh al l b e ta ke n a s es tabl is he d.” Thi s ca se was c al le d fr om th e cal en dar of

th e Co urt’s New Yo rk(Newark ) tri al ses si on on Feb ru ary 23 , 20 15 . Neithe r pe ti ti on ers no r th ei r co un se l ap pe ared
. (...co nt inue d) 3 tru th fu ll y admit te d o r de ni edan d s et ti ng forth inde ta il th e rea so ns why th is is so ; or(2) anob

jecti on , st at in g i n d et ai l the reas on s the refo r.”- 10 -

[* 10 ] Co un se l fo r res po nd en t ap pe aredan d fi le d am ot io n fo r de fau ltjud gm en t. The Co urt o rd eredpe ti ti on ers to sh ow caus e, by March25 , 20 15 , why
res po nd en t’s m ot io n s ho ul d n otbe gra nt ed . Thatord er was serve d s ep arat el y on pe ti ti on ers ’ co un se l an d o n p et it io ne rs at t he ir a ddres s o f rec or d. Nei th er pe ti ti on ers no r th ei r co un se l h as res po nd edto th e o rd er o r ot he rwis e co m m un ic at edwith t he Co urt. 4 Dis cu ss io n Und er Ru le 12 3( a), the Co urt m ay ho lda pa rty in d efau ltif h e h as “ fai le d t o pl eador o th erwi se pro ceedas p ro vi de d b y th es e Ru le s o r as requi redby the Co urt.” Ru le 12 3( b) gi ve s the Co urt b ro addi sc ret io n t o d is m is s a c as e “ [f]or fai lu re o f a p et it io ne r pr op erl y to pro se cu te or t o c om

pl y with the se Ru le s o r an y or de r of th e Co urt o r fo r ot he r cau se whi chth e Co urt d eem s s uf fic ie nt .” W e h av e co ns tru edRu le 12 3 l ib eral ly to p erm iten try of a jud gm en t o f de fau ltor d is m is sa l
co ns is te nt ly w ith o urso un d d is cret io n a ndth e in te res ts of ju st ic e. See St rin ge r v. Co m m is si on er, 8 4 T.C. 6 93 , 70 6 (1 98 5) , aff’d wit ho utpubl is he d o pi ni on , 78 9 F.2 d 9 17 (4t h C ir. 1 98 6) . W e h av e en te redjud gm en ts of d efau ltor d is m is sa l Pet it io ne rs ’ at to rn ey

di d n otco op erat e wit h re sp on de ntinpre pa rin g t hi s 4 cas e fo r tr ia l, fa il edto res po ndto sev eral ord ers of thi s C ou rt, andfai le d t o app ear fo r tr ia l. Ru le 20 1( a) re qu ire s p ract it io ne rs be fo re the Co urt t o “ carry on th ei r pr act ic e inacco rd an ce wi thth e le tt er an d s pi ritof t he [ABA] Mod el Ru le s o f Pro fes si on al Co nduc t.”- 11 -

[* 11 ] wher e a t ax pa y er (a m on g o th er thi ng s) : (1 ) un reas on ab ly refus edto st ip ul at e fac ts or t he au th en ti ci ty of do cu m en ts , Lon g v . Comm is si on er, 7 42 F.2d 11 41 (8t h C ir. 1 98 4) ; (2 ) fai le d t o c om pl y with C ou rt- or de reddi sc ov ery, Rec ht zi ge l v . Comm is si on er, 7 9 T.C. 1 32 (19 82 ), aff’d p er cu ria m , 70 3 F .2d10 63 (8 th Cir . 19 83 ); o r (3 ) fai le d t o app ear a t tria l, Ri tc hi e v . Comm is si on er, 7 2 T.C. 12 6 (1 97 9)
. Pet it io ne rs ha ve de m on strat edth ei r refu sa l t o p art ic ip at e in th is pro ceed in g in th es e an d num ero us othe r way s. As we ha ve pre vi ou sl y st at ed : “ If a t ax pa y er do es no t thi nkwell en ou gh of h is cas e to de fen d i t wh ere t he go ve rn m en t h as th e bu rd enof p ro of

, th is Co urt s ho ul d d efau lthi m . To ho lda tr ia l i n acas e ab an do ne d b y th e ta xp ay er i s atbe stanin du lg en ce o f arc ha ic m an ne rs an d a t wo rs t an in su ltto th e ta xp ay ers who ha ve a ri gh tfu l cl ai m on th is Co urt’s t im e.” Bo su rg i v
. Co m m is si on er, 8 7 T.C. 1 40 3, 1 40 8 (1 98 6)
. Res po nd en t b ears so m e d eg ree o f bu rd enco nc ern in g e achis su e in th is cas e, an d we m us t d et erm in e whe th er h e h as carr ie d t he se bu rd en s b efo re en te rin g ju dg
m en t i n h is fav or . Whi le th e Co m m is si on er’s d et erm in at io ns as t o atax pa y er’s t ax li ab il ity are g en eral ly pres um edco rrec t, s ee Ru le 14 2( a), i n c as es in vo lv in g re cei pt of un rep orte d i nc om e res po nd en t h as th e in it ia l b ur de n o f pr ov id in g s om e p red icat e ev id en ce co nn ect in g t he tax pa y er wi th th e in co m e-p ro du ci ng act iv it y , see ,- 12 -

[* 12 ] e.g., De Ca va lc an te v. Co m m is si on er, 6 20 F.2d23 , 27 (3dCir . 19 80 ), aff’g T.C. Mem o. 1 97 8- 43 2; Bal ic e v . Comm is si on er, T.C. Mem o. 2 01 5- 46 , at * 9. With
res pe ctto ad di ti on s t o t ax un de r se ct io n 6 65 1, re sp on de ntbe ars th e b ur de n o f pr oduc ti on . See s ec. 7 49 1( c). W it h re sp ectto frau d p en al ti es un de r se ct io n 6 66 3,
res po nd en t b ears th e b ur de n o f pr oo f by clea r an d c on vi nc in g e vi de nc e. See s ec. 74 54 (a); Ru le 14 2( b) . Res po nd en t ca n s at is fy th es e b ur de ns by rely in g o n t he ta xp ay er’s d eem edadm is si on s an d o n fa ct s d eem edest ab li sh ed . See Ru le 90 (c); Nis Fam il y

Trus t v . Comm is si on er, 1 15 T.C. 52 3, 5 28 (20 00 ). On the reco rdbe fo re u s, i t i s cl ear tha t p et it io ne rs have “ fai le d t o p le ador ot he rwis e p ro ceed ” wit hi n t he m ean in g o f Ru le 12 3( a). The y fai le d t o c oo pe rat e with re sp on de ntinst ip ul at in g fa ct s o r pr ep ari ng fortri al an d re pe at ed ly refus edto pr ov id e d is co ve ry . They ha ve ig no redm ul ti pl e Co urt o rd ers , in cl ud in g a n o rd er t o sh ow caus e why we sh ou ldno t g ran t the de fau ltm ot io n c urren tl y be fo re u s. An d th ey fai le d t o app ear f

ortri al , of wh ic h t he y

were g iv enm or e th ansu ffi ci en t ad
va nc e n ot ic e. Afte r rev ie win g t he en ti re re co rd , we con cl ud e th atth e fac ts th atare d eem ed to ha ve be enest ab li sh ed , com bi ne d wi th th e aff

irmativ e al le ga ti on s o f frau d t ha t pe ti ti on ers are d eem edto ha ve adm it te d u nd er Ru le 90 (c), co ll ect iv el y sat is fy- 13 -

[* 13 ] res po nd en t’s b ur de ns of p ro du ct io n a ndpro of as t o e ve ry

is su e in th is cas e. 5 The Co urt wi ll th eref

or e g ran t re sp on de nt ’s m ot io n fo r de fau ltjud gm en t an d e nt er a d eci si on ag ai ns t p et it io ne rs with re sp ectto all de fic ie nc ie s, ad di ti on s t o t ax , and pe na lt ie s d et erm in edinth e n ot ic e o f de fic ie nc y . To re fle ctth e fo reg oi ng , An o rd er g ran ti ng res po nd en t’s
m ot io n a ndde ci si on for

res po nd en t wi ll be en te red
.

Sp eci fic al ly, res po nd en t’s an al y si s o f ch eckde po si ts an d o th er d oc um en ts 5 su ffi ci en tl y

co nn ect s p et it io ne rs with t he ir unr ep orte d i nc om e, an d re sp on de nt cl earl y est ab li sh edth atpe ti ti on ers ’ returns were fi le d l at e. Pet it io ne rs ’ de em ed adm is si on s, i n a dd it io n t o a dm it ti ng frau d i ts el f, es tabl is h n um ero us ba dg es of frau d, i nc lu di ng a m

ul ti -y ear p at te rnof d el ib erat el y om it ti ng in co m e fro m

th ei r ta x returns , a co ns is te ntfai lu re t o k eep requi redbo ok s an d re co rd s, an d apa tt ernof th or ou gh ly unc oo pe rat iv e b eh av io r whe n i nt erac ti ng with re sp on de ntan d th ro ug ho utth e co ur se of thi s p ro ceed in g. Se e, e.g ., Sm it h v . Comm is si on er, 9 1 T.C. 10 49 , 10 59 -1 06 0 (1 98 8) , aff’d, 9 26 F.2d14 70 (6t h C ir. 1 99 1) ; Fo rdv. Co m m is si on er, T.C. Mem o. 2 00 5- 10 1, 8 9 T.C.M . (CCH) 1 13 9, 1 14 2.