T.C. Memo. 1997-265

UNITED STATES TAX COURT

MICHAEL JAMES HEUN, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 12167-96. Filed June 12, 1997.

Michael James Heun, pro se.

Osmun R. Latrobe, for respondent.

MEMORANDUM OPINION

CHIECHI, Judge: Respondent determined the following

deficiencies in, and additions to, petitioner's Federal income

tax:
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1 All section references are to the Internal Revenue Code in

effect for the years at issue. All Rule references are to the

Tax Court Rules of Practice and Procedure.

 Additions to Tax 

Year Deficiency

Section

6653(b)(1)1

Section

6653(b)(1)(

A)

Section

6653(b)(1)(

B)

Section

6653(b)(2)

Section

 6654 

1983 $8,389 $4,195 -- -- * --

1984 ** 6,412 -- -- * --

1985 ** 7,021 -- -- * --

1986 14,340 -- $10,755 * -- $694

1987 ** -- 17,801 * -- --

1988 28,763 21,572 -- -- -- 1,850

* 50 percent of the interest on the portion of the underpayment attributable to

fraud.

** Previously assessed upon filing of delinquent Federal income tax return

(return).

The issues for decision are:

(1) Is petitioner liable for the deficiencies determined in

the notices of deficiency (notices)? We hold that he is.

(2) Is petitioner liable for the additions to tax for fraud

for the years at issue? We hold that he is.

(3) Is petitioner liable for the additions to tax under

section 6654 for 1986 and 1988? We hold that he is.

Background

This case was submitted on the basis of the facts and

evidence that the Court deemed to be established for purposes of

this case in its Order under Rule 91(f) dated January 10, 1997. 

At the time the petition was filed, petitioner resided in

Bethany, Oklahoma.

Petitioner filed a joint return for 1983. He did not
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thereafter file a return for that year claiming "married filing

separate" status. Petitioner did not timely file returns for

1984, 1985, 1986, 1987, and 1988.

On November 20, 1990, petitioner was convicted by a jury of

attempting to evade or defeat tax for 1983 under section 7201 and

of willfully making and subscribing a false return for the same

year under section 7206(1). On the same date, petitioner was

convicted by a jury of willfully failing to file returns for

1984, 1985, 1986, 1987, and 1988 under section 7203. The U.S.

Court of Appeals for the Ninth Circuit affirmed those convictions.

After serving a portion of his sentence for the foregoing

crimes, petitioner was placed on probation. As one of the

conditions of that probation, petitioner was required to file a

return for each of the years 1984 through 1988. As required by

law, petitioner was to report in those returns his wages from

employment during those years as well as other income and deductions.

On or about August 5 or August 9, 1993, petitioner filed

returns for the years 1984 through 1988 with the Internal Revenue

Service Center in Austin, Texas (Austin Service Center). Each of

those returns bore petitioner's signature and the words "without

prejudice" appeared above his signature. Petitioner claimed

"married filing separately" status in each of the returns for the

years 1984 through 1988 and reported total income from wages for
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those years in the following amounts:

Year Wages 

1984 $52,500

1985 57,300

1986 58,526

1987 87,645

1988 111,350

Attached to each of the returns for 1984 through 1988 were

documents entitled "Statements" and "Declarations" of petitioner

in which, among other things, he asserted that the wages that he

received were not taxable income and that he was a nonresident

alien.

At or very shortly before the time petitioner filed returns

for 1984 through 1988 with the Austin Service Center, he filed a

Form 1040NR (U.S. Nonresident Alien Income Tax Return) for each

of those years with the Internal Revenue Service Center in

Philadelphia, Pennsylvania, in which he reasserted his claim that

he was a nonresident alien and that he owed no taxes to the

United States. 

During each of the years at issue, petitioner, who was

licensed as a certified public accountant by the State of Arizona, was employed by Dixon Properties, Inc. and/or Dixon

International Holdings (U.S.A.), Inc. (Dixon) as vice president

in charge of finance and corporate comptroller. The major source

of income for petitioner during the years 1983 through 1988 was

Dixon. In his capacity as financial officer of Dixon, petitioner
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was able to, and did, prevent a Form W-2 (Wage and Tax Statement)

from being sent by that company to him, the Internal Revenue

Service, or the State of Arizona with respect to his wage income

for each of the years 1984 through 1988. Nor were any Forms 1099

filed in the name of petitioner for those years.

During 1985, petitioner established The Five Star Trust and

began to transfer certain of his assets into the name of that

trust.

Discussion

Petitioner bears the burden of proving that respondent's

determinations in the notices of the deficiencies and the additions to tax under section 6654 are in error. Rule 142(a); Welch

v. Helvering, 290 U.S. 111, 115 (1933). Respondent bears the

burden of proof on the fraud issue, and that burden is to be

carried by clear and convincing evidence. Rule 142(b); sec.

7454(a).

Throughout the course of this proceeding from its commencement when petitioner timely filed a petition in this Court

through the brief that he filed after this case was submitted,

petitioner has persisted in advancing matters that are, inter

alia, frivolous, groundless, irrelevant, immaterial, and/or

nonsensical.

On the record before us, we find that petitioner has failed

to show error in respondent's determinations of the deficiencies

and the additions to tax under 6654. Consequently, we sustain
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those determinations. 

We now turn to the fraud issue. We deal separately with

1983, the year for which petitioner was convicted of, inter alia,

criminal tax evasion under section 7201. We conclude that that

conviction collaterally estops petitioner from denying that the

underpayment for 1983 is due to fraud for purposes of section

6653(b). E.g., DiLeo v. Commissioner, 96 T.C. 858, 885-886

(1991), affd. 959 F.2d 16 (2d Cir. 1992).

With respect to each of the years 1984 through 1988,

respondent must prove by clear and convincing evidence that an

underpayment exists and fraudulent intent. Rule 142(b); sec.

7454(a). Petitioner filed delinquent returns for each of those

years in which he showed that he received wages. On the record

before us, we find that an underpayment exists for each of the

years 1984 through 1988.

In order to prove fraudulent intent, the U.S. Court of

Appeals for the Tenth Circuit (Court of Appeals), to which an

appeal in this case would ordinarily lie, has held that

a taxpayer is not liable for the civil fraud penalties

unless he commits some affirmative act of concealment

or misrepresentation. Mere failure to file, whether

disclosed or not, does not justify the fraud penalties

even when the taxpayer knows that taxes are due. [Zell

v. Commissioner, 763 F.2d 1139, 1146 (10th Cir. 1985),

affg. T.C. Memo. 1984-152.]

Applying the foregoing proof requirements that the Court of

Appeals imposes on respondent, see Golsen v. Commissioner, 54

T.C. 742 (1970), affd. 445 F.2d 985 (10th Cir. 1971), respondent
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2 Petitioner filed delinquent returns for the years 1984 through

1988 because he was required to do so as one of the conditions of

his being placed on probation after he served a portion of his

sentence for his convictions under secs. 7201, 7206(1), and 7203.

must show by clear and convincing evidence some affirmative act

by petitioner of concealment or misrepresentation, such as filing

false information or attempting to mislead respondent, see Zell

v. Commissioner, supra at 1146, in order to prove fraudulent

intent for each of the years 1984 through 1988.

The record in this case establishes that, in his capacity as

financial officer of Dixon, his employer, petitioner, a licensed

certified public accountant, was able to, and did, prevent a Form

W-2 from being sent by that company to the Internal Revenue

Service with respect to the money that that company paid him

during each of the years 1984 through 1988. It is implausible to

us that petitioner's training and experience as a certified

public accountant would lead him to conclude that his employer

was not required to file a Form W-2 for any of those years. We

find petitioner's preventing his employer from filing a Form W-2

for any of the years 1984 through 1988 to be an affirmative act

by petitioner of concealing the money that that company paid him

during those years. See Zell v. Commissioner, supra at 1146. In

addition, for each of the years 1984 through 1988, petitioner

failed to file timely a return,2 was convicted of willfully

failing to file a return under section 7203, and attempted to

evade reporting a substantial amount of income by such failure.
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3 The notice of deficiency for petitioner's taxable years 1984

and 1985 determined, inter alia, that petitioner is liable for

each such year for the addition to tax under sec. 6653(b)(2) with

respect to a previously assessed underpayment that is attributable to not only petitioner's wage income for 1984 and 1985 in

the amounts of $52,500 and $57,300, respectively, but also

capital gain and interest income of $967 and $1,600, respectively. Respondent has failed to prove the requisite fraudulent

intent with respect to such assessed underpayment for each of the

years 1984 and 1985 that is attributable to such capital gain and

interest income. See sec. 6653(b)(2). 

Based on our review of the record in this case, respondent

has persuaded us by clear and convincing evidence of petitioner's

fraudulent intent with respect to the underpayment for each of

the years 1984 through 1988 that is attributable to his wage

income. Accordingly, we sustain respondent's determinations (1)

for each of the years 1984 and 1985 (a) under section 6653(b)(1)

and (b) under section 6653(b)(2) to the extent based on the

previously assessed underpayment for each such year that is

attributable to petitioner's wage income;3 (2) for each of the

years 1986 and 1987 under section 6653(b)(1)(A) and (B); and (3)

for 1988 under section 6653(b)(1).

Although respondent has not requested a penalty under

section 6673, this Court is authorized to impose such a penalty

in cases where the taxpayer's position is frivolous or groundless

or the proceeding was instituted or maintained primarily for

delay. Sec. 6673(a)(1)(A) and (B); Coulter v. Commissioner, 82

T.C. 580, 584-586 (1984). Under the circumstances presented

here, we conclude that petitioner's positions in this case that,
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inter alia, he is not liable for income tax on the wages that he

received during the years 1984 throughout 1988 and that he was a

nonresident alien during those years are frivolous and groundless. We further conclude that petitioner instituted and maintained this proceeding primarily for delay. Accordingly, we hold

that petitioner is liable for a penalty under section 6673 in the

amount of $25,000.

To reflect the foregoing,

Decision will be entered

under Rule 155.