TAX COURT OPINION

Case: Daivid Norman Gross
Docket Number: 20082-05
Judge: Gale
Opinion Type: memo
Filed: 09/25/2008
Pages: 16

T .C . Memo .'2008-21 8 UNITED STATES TAX COUR T DAIVID NORMAN GROSS ;" Petitioner v . COMMISSIONER OF INTERNAL REVENUE, Responden t Docket No . 20082-05 . Daivid Norman Gross , pro se . Beth Nunnink, for respondent .. MEMORANDUM OPINION GALE, Judge This case is before the Court on respondent's motion to dismiss for-lack of prosecution,-for default j udgment , and for entry of .decision . As discussed below, we shall gran t respondent's motion . Unless otherwise noted,, ., all section I references are to the Internal Revenue Code of .1986 as in effec t for the years in issue, all Rule references are to the Tax Cour t SERVED SEP 2 5 2008 _.,Rules of . Practice and Procedure , and all dollar amounts have bee n - 2 Backgroun d Petitioner did not file Federal income tax returns for 2001 and 2002 .' Respondent prepared substitutes for return for both years an& issued a notice of deficiency , determining the f(cid:127)ol1owing . deficiencies , additions to tax ,, and penalties wit h respect to petitioner ' s income tax : Year Deficiency Sec . 6651 ( a)(2) Sec . 6651 ( f)' Sec . 665 4 Additions to Ta x 2001 2002 33,323 $ 20,301 $3,857-1,114 , $14,718 '$811 24,159 4,33 2 ' In the alternative , respondent asserts additions under sec . . 6651(a)(1) if the Court determines petitioner is not liable fo r the addition to tax under sec . 6651(f) . Petitioner filed a timely petition with respect to the notice of deficiency . He resided in'Tennessee when he did so , and he ' listed a Tennessee address (Tennessee address) . Petitioner designated Nashville, Tennessee ., as the place-of trial . On December 27, 2005, respondent filed an answer which made specific affirmative allegations in-support of 'establishing the additions to'tax under section 66514 ( f) for fraudulent failure=t o file returns for 2001 and 2002 . ' Theanswer was served o n petitioner a _the -Tenness"ee address . - 3 - On March 17 ., 2006, respondent' filed a . motion for entry of . an order that undenied allegations in respondent' s answer be deeme d admitted under,Rule 37(c) . On March 23, 2006 ., petitioner: sent a letter to the Court requesting that his address be changed to an address in Florida (Florida address) . Petitioner's address wa s A changed . by order--dated April 11, . 2006, which was servedn petitioner by certified mail at the . Florida address . After th e Court granted a further extension by order dated may 8, 2006 , served on petitioner by certified mail at the Florida address , petitioner filed a reply on May 22, 2006 . The Court thereupon denied respondent's Rule 37(c) motion . Petitioner's reply addressed the allegations in respondent' s answer and also specifically referred to extensions of time t o file the reply, notice of which had been served on petitioner by certified mail at the Florida address . On November 24, 2006, respondent served requests fo r admission on petitioner by first class mail at the Florid a address . Petitioner did not respond to the requests for admission, nor were they returned to respondent as undeliverable . ' On December 12, 2007, the Court served upon petitioner by certified mail at the Florida address a notice setting . case . fo r I 'The record establishes that petitioner was receiving mail from-respondent at the . Florida address from early August 200 6 through late December 2006 . See infra n .2 . trial and a standing .pretrial order, . .which advisedrthat_the tria l in petitioner' s=case was-set for May'(cid:127) .5.,(cid:127) .(cid:127)2008, in Nashville , Tennessee .. The notice setting case for trial stated in part :... YOUR-FAILUREI TO' APPEAR MAY RESULT IN-DISMISSAL OF THE CASEAND ENTRY OF DECISION AGAINST YOU . Your attention is called to the Court's requirement that * * * the parties must agree in writing to all facts and all documents about which there should be .no .disagreement . Therefore, the parties-should contact each other promptly and cooperate fully * * * . YOUR FAILURE TO COOPERATE MAY ALSO RESULT IN- .DISMISSAL OF THE CASE AND ENTRY OF DECISION AGAINST YOU . The envelope containing the notice setting case for trial and th e standing pretrial order was returned unclaimed . Respondent subsequently filed motions to compel discover y under Rules 71(c) and 72(b), and the Court ordered petitioner t o comply .2 That order was served on petitioner by certified mai l at the Florida address on March 11, 2008 . The order was returne d unclaimed, and petitioner did not respond . A subsequent orde r imposing sanctions-on petitioner for his failure to respond , served on petitioner by certified mail at the Florida address o n April 8, 2008, was also returned unclaimed . Thereafter, the Court served another copy of the sanctions order .on petitioner by first class mail at the Florida address . That copy was returned ; 2Respondent's motions to compel included letters from petitioner responding to respondent's informal'and formal discovery , requests, with dates . from early August 2006 throug h late December 2006, demonstrating'that petitioner was receiving respondent's mailings at the,Florida address during this period . on-the mailing (cid:127)envelope =the address had-,been blacked out and a notation'by the United-States .Postal Service added, stating : . "RETURN TO SENDER This mail cannot be corrected ; because the original address was covered by,customer" . On May .1, 2008, 4 days before the trial date, . the Court received'a letter from .petitioner, : .which was filed as petitioner'-s motion to dismiss .--,: . Therein, petitioner stated tha t he was-responding to-the Court' s notice setting case for trial . ' However, the letter also claimed that petitioner had not received any correspondence from the Court since he . filed his reply, which had occurred some 19 months before the notice setting case for trial was sent to him by certified mail ., Petitioner also .denie d having ever initiated this proceeding and urged the Court bring to an end all of: these proceedings :-s they are fr i volous and quite'pointless .11 Petitioner . further asserted that he had moved to Canada on°November .:I9, 2007,-and that an "..immigration issue" prevented him from returning .to the United,States . Finally, petitioner did not , include'a .return .address on the , letter .or the envelope in which ::it was maile d an d requested tha t the Court contact him . by e-mail . 3As noted, the notice setting case .. for . trial . that was served on petitioner at the Florida address. was returned unclaimed The record does not indicate how petitioner received , .a copy of that . notice . When this case was 'callled, for 'trial .. in Nashville, Tennessee, on May-'5, 2008, there was no : appearance by or on behalf of ; petitioner .° Counsel .for .respondent .(cid:127)appeared and filed a motion to dismiss .for lack of prosecution, _for default judgment, .:and for entry of decision '(respondent's motion), ._ ',In a May 29, 2008 , order served on petitioner by certified mail at,the Florida motion"." The order was returned unclaimed, and petitioner . has : respond to respondent's : : address,-the Court directed petitioner to not' responded . Petitioner's 'Mot;ion To Dismiss ' Discussion Petitioner',.s motion to dismiss asserts simply that these proceedings re frivolous and offers no , other ., reason why this case should be dismissed .,-'Respondent-issued a .notice-o f deficiency to petitioner with respect to petitioner's 2001 : and 2002 taxable years, and petitioner timely petitioned the Court . Thus, we have jurisdiction . -See- ::secs . 6212 and 6213 ' Monde v . Commissioner , 93 T .C . 22, 27=(1989)=. [A]r taxpayer may not unilaterally oust'the Tax Court,from jurisdiction'which, :onc .decides .the controversy .' " e invoked, remains unimpaired until it 4We note that at that time there was no provision in the Rules allowing service of orders by electronic means . Rule 2 1(b) (1)- required service of orders, by mail to the party's last known address or by-'(personal) delivery to a party . . 'Rule .-- 21(b)(4) required a party to' promptly notify the, Court of ,any change of address . - 7 - Estate of Ming v . Commissioner , 62 T .C . 519, 521 (1974) ({quoting Dorl v . Commissioner , 57 T .C . 720,-722 (1972), affd .(cid:127)507 1F .2d 406 (2d Cir . 1974)) . Accordingly, we shall deny petitioner's motio n to dismiss . Respondent's Motion To Dismis s Respondent requests that we dismiss this case for lack of prosecution under Rule 123(b ) and hold petitioner in default under Rule 123(a ) with respect to the addition to tax for fraudulent failure to file under section 6651(f) . Dismissal for Lack of Prosecutio n The Court may dismiss a case at any time and enter al decision against the taxpayer for failure properly to prosecute his case, failure to comply with the Rules of this Court for any order of the Court, or for any cause which . the Court deems sufficient . Rule 123(b) ; Edelson v . Commissioner , 829 F .2d 828 , 831 (9th Cir . 1987), affg . T .C . Memo . 1986-223 ; McCoy v . Commissioner , 696 F .2d 1234, 1236 (9th Cir . 1983), affg . 76 T .C . 1027 (1981) . The Court may dismiss a case for lack of prosecution if the taxpayer inexcusably fails to appear at trial and does not otherwise participate in the resolution of hi s claim . Rule 149(a) ; Brooks .v . Commissioner , 82 T .C . 41 3 (1984) , affd . without published opinion 772 F .2d 910 (9th Cir . 19 85 ) Petitioner has failed to prosecute this case properly . Petitioner's failure to appear for trial is unexcused . His motion to dismiss, received 4 ., days before the trial, , demonstrates that petitioner was aware of .the .trial' date and the contents . of °E the notice setting' case for :trial', which .warned,. of dismissal and entry of an adverse decision in the event of a failure . toappear . The statements petitioner made in his motion to dismiss, _ especially those directed at creating the impression that he . was unaware of the Court.'s efforts''to contact him concerning these proceedings,, are unworthy of :belief . In-his motion,petitioners states both that he was responding to the notice setting case for trial and that he had received nothing from,the Court .since,the, filing of his reply (which= occurred some 19 months before the trial notice was issued) . These statements are . inconsistent' . Petitioner's assertion in the motion that°he did . not initiate this lawsuit' is incredible ; his petition and designation of trial .location-are in the . record . The circumstances under which the Court's sanctions order,' sent= to petitioner.by,first class mail, was returned with the address blacked out by the postal customer (according to the U .S ." PostalLService) invite . strong suspicion that petitioner was . deliberately . refusing delivery of the-Court's mailings . Even if one accepted as true petitioner's claim that he moved to Canada on November 19, 2007;,° and was prevented by an, . "immigration issue" 'from returning to the United .States petitioner had ample ;time to seek a continuance . . Instead, on the eve of trial he sent a letter urging that the proceedings=be . 9 terminated . Consequently, we are satisfied that petitioner is merely attempting to forestall'the day of reckoning regarding his tax liabilities and alleged fraud . Finally, petitioner was aware of the directive in the notice setting case for trial that h e cooperate with respondent in the stipulation process . Petitioner's correspondence replying to respondent's informal and formal discovery requests demonstrates that he was aware l I of respondent's discovery efforts . However, petitioner did no t cooperate in . the stipulation or discovery process . The foregoing provides ample grounds :for_granting respondent's motion to dismiss for lack of prosecution . Accordingly, we shall grant respondent's motion as more fully described below . Deficiencies All of the material allegations set forth . in the petition ,in support of the assignments of error have been denied i n respondent's answer . Petitioner has not claimed, or shown eligibility for, any shift in the burden of .proof .s Accorrdingly, 1 the burden of proof rests with petitioner concerning any error in 'Any burden that respondent may bear . to show a minimum evidentiary foundation for petitioner's' receipt of income in 2001 and 2002 ., see e .g . United States . v . Walton , 909 F .2d 915,E 919 (6th Cir . 1990), has been satisfied by petitioner's deemed admissions . Under Rule 90(c), petitioner's failure to respond to respondent's requests for admission resulted in petitioner's being deemed to have admitted that .he lived in the United States for more than 183 days in 2001 and 2002 and had income ofj at least $63,660 and $96,293, respectively, in those years ., 10 - the deficiency. determination and petitioner has adduced no evidence in support of the'assignments of .error in the petition .. . We shall therefore sustain .respondent:E's determinations of the deficiencies for 2001 and-2002 . Additions to Tax Under Sections 6651(a)(2) and 6654(a ) Pursuant tosection 7491(c), the burden of production is on respondent with respect to the additions to tax determined under . sections 6651(a) ( 2 ) and 6654(a)-. 6 See Higbee v . Commissioner, - 116 T .C . 438, 446 (2001) . Respondent offers certified copies o f substitutes for return he prepared-for petitioner for 2001 and 2002 and deemed admissions to meet his burden"of production- On November 27, 2006, respondent . served requests,for admission by first class mail on petitioner at the-Florida' address .. This mailing was not returned . Petitioner claims in his motion to,dismiss that he received nothing from .the-Court after he filed'his reply on'May 22, 2006 .' Notably, petitioner does not' make the = same claim with respect, to mailings fro m respondent ., Most significantly, respondent served other discovery requests on-petitioner'by mail at the Florida address, only 3 days before serving the requests for admission at tha t address . The record .=contains letters petitioner sent responden t 6Respondent'would 'also beat the burden of'production on his alternative position that petitioner is liable .f or additions to : tax under sec . 6651(a)(1) . However, because we conclude . ;. infra , ., that the fraud additions under sec . 6651(f) should .be sustained,, we need not address sec . 6651(a)(1) - 11 - in response to those discovery requests, which demonstrate that petitioner received them . We have no difficulty concluding that petitioner received-service of the requests for admission . His failure to respond to them therefore results in,each matte r therein being deemed admitted under Rule 90(c) . The certified copies of substitutes for return for 21001 an d 2002' show liabilities of $20,301 and $ 33,143, respectively . The deemed admissions establish that petitioner made no payments of tax or estimated tax and had no tax withheld for either year . Thus, respondent has met his burden of production with respect to the additions to tax under section 6651(a)(2) . Further, the deemed admissions establish that petitioner did not file a return for the year preceding the years in issue . Respondent's substitutes for return establish that petitioner ha d a required annual payment for 2001 and 2002 . See sec . 1 6654(d)(1) (B) . Thus, respondent has met his burden of production with respect to the section 6654(a) addition as well . Petitioner has adduced no evidence in-support of any exculpatory y factors . See Higbee . v . Commissioner, .su ra a,lt 446- ~ 'The . substitutes for return include Forms 1040, U .S . Individual Income Tax Return, to which were attached Forms 4549, .Income Tax Examination Changes, Forms 886-A, Explanation of Items, and a revenue agent's certifications that these forms constitute valid, returns under sec . 6020(b) . The substitutes for return contain sufficient information from which to compute petitioner's tax liability and meet the requirements of sec . 6020(b) . See Wheeler v . Commissioner , 127 T .G . 200, 209-210 (2006), affd . 521 F .3d 1289 (10th Cir . 2008) . - 1 2 447; see also Wheeler v . Commissioner , 127 T .C .-200, 206'°(2006 affd . 521 F .3 d 1289 (10th Cir . 2008) . . We accordingly, shal l sustain respondent's determinations of the additions to tax,under sections-6651(a)(2) and,6654(a)(cid:127) ,for .2001 and 2002 . . . Section 6651(f) Additions to Ta x Respondent has moved for a default under . Rule 123 (a) with respect to .the additions to tax for fraudulent failure to,'file under section 6651(f) . The Court,,may hold any_party in default and may enter a judgment againstthedefaulting party if that party has failed to plead or°otherwise proceed . as provided by the Court's Rules or as required .by the Court . Rule 123(a) .,'. Sections 601 1 and 6012 require every .individual who hasK gross income in excess(cid:127)of .certain .amounts for a taxable : year to file an income tax return . Section, 6651 .(a) ;(1)_ provides for an addition to tax for failure-to file a timely, return, equal to , 5 percent of the amount required to be shown astax on the return , for each month or fraction thereof during which such failure continues, .not exceeding 25 percent .in .the aggregate . If, however, the failure to file any :return . .is fraudule n section 6651(f) imposes an increased addition .to tax equal to 15- percent of the amount required 'to be shown as'tax on the retur n for each month or fraction thereof during which such .failur e continues, not exceeding 75 percent in .the aggregate (instead of the 5 percent/maximum 25 percent addition under section - 13 - 6651(a)(1)) . Respondent has determined that petitioner's failures to file for 2001 and 2002 were fraudulent . The Commissioner must prove fraud by clear and convincing { evidence . See sec . 7454 ( a) ; Rule 142(b) ; Clayton v . Commissioner , 102 T .C . 632, 646 (1994) . In determining whether petitioner's failure to file was fraudulent within the meaning o f section 6651(f), we'consider the same elements that are relevant in imposing the penalty for underpayment of tax due to frau d under section 6663 . Clayton v . Commissioner , supra at 653 ; se e i also Pappas v . Commissioner , T .C . Memo . 2002-127 . 1 Establishing fraud requires proof that the taxpayer "acted with an intent'to evade paying taxes ; this may be proved, by circumstantial evidence . Douge v . Commissioner , 899 F .2d 164, 168 (2d Cir . 1990) . A number of .indicia, or "badges", of fraud may give rise t o a finding of fraud . Among these are (1) Failure to file tax returns ; (2) failure to report income over an extended period of time ; (3) failure to furnish the Commissioner with access t o records or to cooperate with taxing authorities ; (4) failure to keep adequate books and records ; (5) the taxpayer's exper=ience I and knowledge, especially knowledge of . tax laws ; (6) conc4almen t I of bank accounts or assets from Internal Revenue agents ; (7) a taxpayer's willingness to defraud another in a business transaction ; (8) implausible or inconsistent explanations of 1'4 - behavior ; (9) failure to make estimated tax .payments(cid:127) and (10 :) a pattern of behavior thatlindicates,an .intent to .mislead . Solomon v . Commissioner , 732 F .2d 1459_,,1461-1462 (6th Cir . .-1984) ,affg .j T .C . Memo . 1982-603 ; : Recklitis,v . Commissioner , 91 T .-C,. 874, -910 (1988) The,effect of a default is ,to :- .establish, the_well-pleaded facts of the' .nondefaulting party . Smithy . . Commissioner , . 91 T .C . 1049, 1057 , (1988) , affd'°., 926 F .2d 1470 -(6th Cir .,1991) . If-we-,, enter°a default judgment against petitioner with respect to the', additions to tax under . section-6651(f),,we must decide whether respondent's specific allegations of :fact, taken .'to°be true by virtue of , the ; default, are°i sufficient to, establish, petitioner's fraudulent-'failure . to file by clear,and convincing evidence .. : See id . at 1059 . Petitioner "has-failed to plead or otherwise proceed" within the meaning of Rule 123(a) . He,failed to participate in the, preparation of his case for . trial, . and' he failedF-to appear fo r trial without excuse . Entering a default against' petitioner with' respect to the' 'additions to,tax °for fraudulent-failure to file -is therefore--"appropriate upon .a " determination -in :our . ' sound' judicial discretion" that the pleadings set forth sufficient facts to support such a judgment. Smith v . Commissioner ,, supr a at 1058-1059 (quoting Bosurgi v . Commissioner , 87 T, .C . 1403-, 1408- (1986) ) .. W - 15 - Respondent's specific allegations of fact, taken to be tru e by petitioner ' s default , establish the following . Petitioner did not file tax returns for the years at issue , and he has not file d tax returns for any year since 1990 . During 1998 through1200 2 petitioner received unreported taxable income from his business activities, which included fraudulent investment schemes wherein I petitioner promoted , aided, and abetted other taxpayers in tax I evasion through the use of offshore bank and credit car d accounts . Petitioner was sued civilly by certain investors in respect to these schemes , and a judgment was entered against hi m in the Sixth Judicial Circuit Court for Pinellas County, Florida . Petitioner did not . maintain adequate books and records, and he failed to submit records of his income-producing activities to t respondent . Petitioner ' s failure to maintain records of his income - producing activities was fraudulent with the intent to evade tax . Respondent determined petitioner ' s income for12001. and 2002 using the bank deposits method . Petitioner made extensive deposits to various bank accounts with a bank in the Bahamas , with Toronto Dominion Bank, with Bank of America, an d with Southtrust Bank during 1998 through 2002 . Petitione I fraudulently and with the intent to evade tax made false and rI misleading statements to respondent ' s revenue agents during the I - 1 6 examination of petitioner's income tax . liabilitie :s'.° Finally, petitioner. was aware of, the requirement to„ file Federal income tax returns', ., and .he failed(cid:127)to .do so,with the intent to evade tax . The foregoing . facts as alleged in respondent's answer clearly . and convincingly establish that in failing to file . tax. returns for,-2001 and 2002'petitioner intended, .to evade paying taxes and thereby committed fraud . These . :facts .are-(cid:127)established_ by virtue 'of petitioner's default . Accordingly, we,shall sustain respondent's determination of .the-addit.ions to tax for fraudulent failure to file under section : .6651 (f) 'by entry of a -defaul t "judgment . against . petitioner, . To reflect the foregoing, :' An appropriate order and decision will be entered .