TAX COURT OPINION

Case: Jeffrey A. Roye
Docket Number: 9913-10
Judge: Halpern
Opinion Type: memo
Filed: 08/27/2012
Pages: 28

T.C. Mem . 2012-246 UNITED STAT S TAX COURT JEFFREY A. R YE, Petitioner v. COMMISSIONER OF INTE AL REVENUE, Respondent Docket No. 9913-10. Filed August 27, 2012. P failed to file tax returns f r 2003 and 2004. R prepared . sec. 6020(b) for those years and substitutes for returns under I.R. ining deficiencies in income tax issued a notice of deficiency dete and additions to tax under I.R.C. ecs. 6651(f) and (a)(2) and 6654. In his answer to amended petition R asserted, as an alternative to additions to tax under I.R.C. sec. 651(f), additions to tax under I.R.C. sec. 6651(a)(1). Held: P is liable for the de iciencies in incóme tax and additions to tax under I.R.C. secs 6651(f) and (a)(2) and 6654 for 2003 and 2004. Held, further, P is liable fo an I.R.C. sec. 6673(a)(1) penalty of $15,000. RVE0 AUÛ .2 7 201 Jeffrey A. Roye, pro se. - 2 - Duy P. Tran, Kathryn F. Patterson, and George Edward Gasper, for respondent. MEMORANDUM FINDINGS OF FACT AND OPINION HALPERN, Judge: By notice of deficiency (notice), respondent determined deficiencies in, and additions to tax with respect to, petitioner's Federal income tax as follows:1 Additions to tax Year 2003 2004 Deficiency Sec. 6651(f) Sec. 6651(a)(2) Sec. 6654 $14,595 21,342 $10,581 15,473 $3,649 , 5,336 $377 612 By answer to amended petition, respondent supported by specific averments his determination of additions to tax under section 6651(f) and, as an alternative to those additions to tax, claimed additions to tax pursuant to section 6651(a)(1). The issues for decision for 2003 and 2004 (years in issue) are whether petitioner: (1) underreported his income, (2) is liable for additions to tax for 1Unless otherwise stated, section references are to the Internal Revenue Code in effect for the years in issue and all Rule references are to the Tax Court Rules of Practice and Procedure. We round all amounts to the nearest dollar. [*3] failures to (A) pay tax timely and (B pay estimated income tax, and (3) is liable for an addition to tax for fraudulen failure to file or, alternatively, for nonfraudulent failure to file 2 We must a so decide whether to make absolute this Court's order dated June 14, 2011, directi g petitioner to show cause why a penalty should not be imposed upon him nder section 6673(a)(1) (sanctioning taxpayers who, among other things, brin proceedings for the purpose of delay or advance a frivolous or groundless positi n). FINDING OF FACT Background At the time he filed the petition an amended petition, petitioner lived in Texas. From at least 1999 to 2009, petiti ner operated a pool-cleaning business. He did not file Federal income tax retu s for taxable years 1999-2004.3 He filed Federal income tax returns for taxable y ars 2005-08, engaging a tax return preparer to prepare those returns. 2There are also certain computati nal adjustments that tfollow from the adjustments at issue, but they are not in ontroversy, and we need not discuss them. 3We assume on the basis of his 2005-08 returns that petitioner was a cash basis taxpayer for 1999-2004. [*4] Internal Revenue Service (IRS) Examination - 4 - Respondent assigned Revenue Agent Mark Tae to examine petitioner's liability for the years in issue. By letter dated March 7, 2008, Revenue Agent Tae informed petitioner that the IRS had not received his tax returns for the years in issue and that he had scheduled a.March 17, 2008, meeting to discuss the matter. In response, petitioner sent a letter, dated March 11, 2008, stating that he would not attend that meeting and denying that he is (1) liable for the "so-called income tax or any other internal revenue tax" and (2) a taxpayer under the Internal Revenue Code. He also stated that he had "filed returns in past years out of total ignorance of the tax laws." Petitioner subsequently sent to Revenue Agent Tae a document claiming sovereign immunity from, among other things, "any administrative action, civil or criminal" brought by the IRS. Petitioner did not provide to Revenue Agent Tae records or other information concerning his taxable income for the years in issue. Therefore, to determine petitioner's income for those years, Revenue Agent Tae inquired of a credit bureau and, on the basis of the received information, he had summonses served on five financial institutions. One of those summoned financial institutions, JPMorgan Chase & Co. (JPMorgan Chase), informed him that, in the years in issue, petitioner had not maintained an account in his name, but he may [*5] have had signature authority with re pect to the bank account of "Freedom Church of Revelation Restoration Ministries" (bank account). Revenue Agent Tae had summonses served on JPMorgan Ch se requesting information concerning that account. Upon receiving the requested reco ds, Revenue Agent Tae examined the deposits made to the bank account, over hich petitioner, indeed, held sole signature authority, and copies of cancel d checks. Noticing that memo lines of several deposited checks referenced "po 1 services", he sent 21 third-party contact letters to issuers of those checks requesti g additional information. He received . several responses, all of which confirme that petitioner had serviced their swimming pools during the years in issu and either that they remitted to him checks made out to "FCR" or petitioner' company name was "FCR". . Revenue Agent Tae then reconstr cted petitioner's income for the years in issue under the so-called bank deposits ethod. To reconstruct petitioner's income for each year in issue, he prepar d a schedule of the net deposit and individual item amount of "checks that as [sic] received by [petitioner] and deposited to a bank account under the náme of Freedom Church of Revelation", the source of each deposit (i.e., interest ayment, name of issuer of check), the check number, and the memo text (i.e., evenue Agent Tae's notation of an - 6 - [*6] interest payment, memo line of deposited checks). To the sum of those deposits he added undeposited items from third parties (customers),4 and he subtracted interest credited to the account and identifiable nontaxable deposits. He believed that, for each year in issue, the resulting sum represented the year's unreported gross income from petitioner's pool-cleaning business. 2003 Adjustment Revenue Agent Tae determined that, during 2003, total deposits of $49,974 were made to the bank account, from which he subtracted $378, representing interest, the difference being unreported net deposits from pool cleaning. He further concluded that petitioner also received from customers $2,983 for pool cleaning services rendered, none of which was deposited into the bank account. He determined the net deposits plus undeposited items from customers, totaling $52,579, to be petitioner's 2003 unreported gross income from his pool-cleaning business. 4Undeposited items from third parties represent amounts, identified by Revenue Agent Tae through third-party contact letters, paid to petitioner by customers of his pool-cleaning business, which were not deposited into the bank account. [*7] 2004.Adjustment Revenue Agent Tae determined th t, during 2004, total deposits of $69,889 were made to the bank account, from wh ch he subtracted $495 and $500, representing interest and gifts, respective y, the difference being unreported net deposits from pool cleaning. He further oncluded that petitioner also received from customers $1,961 for pool cleaning services réndered, none of which was . . deposited into the bank account. He det rmined the net deposits plus undeposited items from customers, totaling $70,855, o be petitioner's·2004 unreported gross income from his pool-cleaning business. All Years Revenue Agent Tae could not ide tify, for either year in issue, any business expenses paid from the bank account. Substitutes for Returns Under Section 6 20(b) . Respondent prepared substitutes f r returns under section 6020(b) for petitioner's years in issue (section 6020( ) returns); The 2003 section 6020(b) return showed $378 and $52,579 of inte est income and Schedule C gross receipts, respectively, totaling $52,957. The 200 section'6020(b) return showed $495 and $70,855 of interest income and Schedul C gross receipts, respectively, tötaling $71,350. The interest amounts and Sch dule C gross receipts are the same as - 8 - [*8] those determined in Revenue Agent Tae's bank deposits analysis. The section 6020(b) returns showed resulting deficiencies of $14,595 and $21,342 for the years in issue. In response to a Letter 950 (i.e., a 30-day letter), proposing changes to petitioner's tax for those years, petitioner (1) disagreed with the proposed changes, (2) reiterated his denial of "taxpayer" status under the Intemal Revenue Code, and (3) stated that he "did not file tax returns for tax years ending 200312 & 200412 * * * [and] there is no Code Section in the Internal Revenue Code that authorizes the IRS to 'change' returns, even if [he] had filed a return." Petitioner did not make any income tax payments or any estimated tax payments for 2003 or 2004. Notice Respondent issued the notice on January 27, 2010, from his Small Business and Self-Employed Office, Dallas, Texas. It was signed on his behalf by Janet A. Miller, "Technical Services, Gulf States Area". In an attachment to the notice, respondent explained that, for each year in issue, his determination of a deficiency in tax was principally due to his adjustments increasing petitioner's gross receipts from his pool-cleaning business plus unreported interest income. Respondent also explained his determination of additions to tax under sections 6651(f) and (a)(2) and 6654 for each year in·issue. [*9] Petitioner's Discovery Petitioner used the Court's informa discovery procedures to, among other things, request of respondent the followi g: Please provide copy of the documentation, which REQUEST 1: loyee identification number, job states the badge number and/or e description, position, and GS level with the IRS of Janet A. Miller, along with a printed copy of the p son's name, who signed the Notice of Deficiency, which was i sued by respondent in the instant case (Docket No. 9913-10). REQUEST 2: Please.provide copy of Janet A. Miller's (person who signed the Notice of Deficien y, which was issued by respondent in the instant case (Docket No. 99 3-10) constitutional oath of office, as required by Article VI, Clause , U.S. Constitution and 5 U.S.C. Sec. 3331. REQUEST 3: Please provide copy of Janet A. Miller's (person who signed the Notice of Deficien y, which was issued by respondent in the instant case (Docket No. 99 3-10) affidavit, declaring that she did not pay for or otherwise make promise to secure the office as required by 5 USC Sec 3332. * · * * . * * Provide eviden e that the Forms 1040 for years REQUEST 11: 2003 and 2004, that petitioner did not file, complied with the requirements of 44 U.S.C. §§ 350Å (c) (1) (B), 3507 & 3512 (a) (1) and (2)(Paperwork Reduction Act). The United States Supreme Court ruled in Dole v. United Steelworkers of America, 494 U.S. 26, 33 (1990), that the Paperwork Rec uction Act applies to Internal Revenue Service tax forms. REQUEST 12: 2003 and 2004, that petitioner did not file, complied with the Provide evide ce that the Forms 1040 for years - 10 - [*10] requirements that the Office of Management & Budget ("OMB") mandates pursuant to regulations at 5 CFR 1320.8(b)(3) and 1320.9. REQUEST 13: specific liability for taxes imposed by subtitle A of the Internal Revenue Code that apply to petitioner. Please provide a copy of all statutes creating a Petitioner moved for permission to orally examine Revenue Agent Tae and Ms. Miller. Respondent objected, and we denied the motion. In our order doing so, we stated: Respondent represents, and we agree, that petitioner's allegations of error in the petition raise meritless legal theories and the scope of the proposed depositions is to further advance his meritless arguments, which are not relevant to the subject of this case. We shall deny the motion to take depositions. We also advise petitioner to consult section 6673 of the Internal Revenue Code, which allows us to impose a penalty not in excess of $25,000 for, among other things, a proceeding in which the taxpayer's position is frivolous or groundless. Petitioner further attempted to use the Court's formal discovery procedures-- his motion to compel production of documents--to make requests similar to those he made using informal discovery. Respondent objected, and we denied the motion. In our order so doing, we stated: In the objection, respondent lists petitioner's assignments of error and objects that all of petitioner's theories are meritless. We agree. Petitioner's request for production of documents is not reasonably calculated to lead to the discovery of admissible evidence and is unduly burdensome and otherwise inappropriate. * * * - 11 - [*11] We advised petitioner to read the alithorities cited by respondent in his response to the motion and again advise him to examine section 6673. We added: "The purpose of section 6673 is t compel taxpayers to think and to conform their conduct to settled principl s before they file returns and litigate." Takaba v. Commissioner, 119 T.C. 285, 95 (2002). Trial of the Case Petitioner failed to appear for trial of the case. Respondent proceeded, and the trial was concluded without petitione 's participation. Posttrial Petitioner disobeyed the Court's oider at the conclusion of the trial to file a brief. Petitioner did file a motion to disniiss for lack of subject matter jurisdiction, stating as grounds, among others, the fol owing: That declarant's occupation in life is operating a swimming pool cleaning and handyman servi e. These activities are not taxable revenue activities. That the free e ercise and enjoyment of the God-given and constitutionally se ured right to lawfully acquire property and/or compensation in ederal Reserve notes, by lawfully contracting my own labor in inno ent and harmless activities cannot be (and therefore has not been) ta ed for revenue purposes. being subject to any internal reve ue tax including the so-called income tax. I deny [*12] He summarized his argument as follows:. - 12 - For the reasons stated herein, declarant denies being a '/taxpayer" as that term is very narrowly defined in the Internal Revenue Code at sections 1313(b) and 7701(a)(14). Respondent has not any cited any statute in its notice of deficiency, dated January 27, 2010, that makes declarant liable for the alleged for calendar years 2003 and 2004. Therefore, said notice is not a valid notice, could not possibly apply to declarant and therefor does not confer jurisdiction on this court. We denied the motion. We issued an order directing petitioner to show cause why the Court should not impose upon him a penalty under section 6673(a)(1). I. Unreported Income OPINION Respondent contends that petitioner had unreported gross receipts of $52,579 and $70,855 for the years in issue, from his pool-cleaning business. He also contends that petitioner received and failed to report for the years in issue interest income of $378 and $495, which was credited to a bank account held in the name of Freedom Church of Revelation Restoration Ministries over which petitioner held signature authority. Respondent arrives at his conclusions on-the basis of the bank deposits analysis prepared by Revenue Agent Tae. Taking into account computational adjustments, respondent determined deficiencies in tax of $14,595 and $21,342 for the years in issue. [*13] Petitioner bears the burden of pro f. _See Rule 142(a). - 3 - Wherè a taxpayer fails to maintain adequate recòrds, the Commissioner may reconstruct his income by using the ba deposits method. Sec. 446(b); Clayton v: Commissioner, 102 T.C. 632, 645 (1994 . Bank deposits are prima facie evidence of income. Tokarski v. Commissioner, 7 T.C. 74, 77 (1986). The bank deposits method of proof assumes that all deposit made tò a taxpayer's bank account are taxable income unless the taxpayer can s ow that the deposits are not taxable. - Clayton v. Commissioner, 102 T.C. at 6 5. The Commissioner need not show a likely source of the income, but he must ake into account any nontaxable items or deductible expenses of which he has kn wledge. Id. 5The U.S. Court of Appeals for th Fifth Circuit, to which an appeal would lie absent a stipulation to the contrary, s e sec. 7482(b)(1)(A), has held that for the presumption of correctness to attach in n unreported income case, the Commissioner must "present some pred'eate evidence supporting its determination", Portillo v. Commissiondr, 932 F.2d 1128, 1133-1134 (5th Cir. 1991), affg in part, rev'g in part T.C. M mo. 1990-68. Respondent has done so by submitting, for each year in issue, a.rec d of bank deposits made to, and interest credited to, the bank account over whic petitioner held sole signature authority and testimony of individuals that they r cleaning services rendered during the y itted checks to petitioner, for pool s in issue. In addition, petitioner makes no gument that, pursuant to sec. 7491(a), the burden shifts to respondent. In any eve t, the record establishes that petitioner does not satisfy the preconditions found in sec. 7491(a)(2). - 14 - [*14] To reconstruct petitioner's income for the years in issue under the bank deposits method, Revenue Agent Tae had summonses served on several financial institutions, through which he identified a bank account held in the name of "Freedom Church of Revelation Restoration Ministries" over which petitioner held signature authority. He also sent 21 third-party contact letters from which he confirmed the existence of petitioner's pool-cleaning business and the deposit in the years in issue of its business receipts to that bank account. Revenue Agent Tae received no information from petitioner; therefore, in preparing the bank deposits analysis, he analyzed the summoned records and contact letters to identify nontaxable deposits and deductible expenses. To calculate net deposits, he reduced the total deposits for each examined year by nontaxable deposits and interest credited to the bank account. He determined that the net deposits for each year in issue plus undeposited items from third parties, i.e., net receipts, constituted unreported gross income from petitioner's pool-cleaning business. Petitioner does not challenge the facts on which respondent's determinations are based, his methodology in reconstructing petitioner's income, or his calculation of tax. He does not claim that for the years in issue his proceeds from pool cleaning and the interest he earned are any less than respondent determined or that proceeds from providing services and interest are not items of gross income. They - 5 - [*15] are. Sec. 61(a)(1) and (2). In the mended petition, petitioner advances only meritless arguments to the effect that: (1) the notice was signed and issüed by an individual lacking delegated authority to do so, (2) the notice does not plainly and clearly lay any income tax liability on pe itioner, (3) respondent lacks the authority under section 6020(b) to file substitutes or returns for petitioner, and (4) the notice placed a substantial burden upon etitioner's religious exercise in . contravention of the Religious Freedom estoration Act of 1993. As evidence of the arguments' lack of merit, see, e.g., eeler v. Commissioner, 127 T.C. 200, 205 (2006) (holding that a notice of defi iency's failure to include a statutory citation for each adjustment does not in alidate the notice), affd, 521 F.3d 1289 (10th Cir. 2008), Adams v. Commission r, 110 T.C. 137, 139 (1998) (holding that the Religious Freedom Restoration Act f 1993 did not exempt the taxpayer from Federal income tax because requiring hi participation in the Federal income tax system is the only means of furthering t e Government's compelling interest in establishing uniform, mandatory partici ation in that system, irrespective of religious belief), affd, 170 F.3d 173 (3d Cir. 1999), and Green v. Commissioner T.C. Memo. 2007-262, 2007 WL 27831 7, at *3 (holdmg it to be "well settled" I - 16 - [*16] that the Secretary or his delegate may issue notices of deficiency).6 We shall not painstakingly further address his assertions "with somber reasoning and copious citation of precedent; to do so might suggest that these arguments have some colorable merit." Crain v. Commissioner, 737 F.2d 1417, 1417 (5th Cir. 1984). Petitioner received $52,957 and $71,350 in unreported gross income for the years in issue, resulting in deficiencies in tax for those years of $14,595 and $21,342, respectively. II. Additions to Tax and Penalties A. Additions to Tax Under Sections 6651(a)(2) and 6654 In general, the Commissioner bears the burden of producing evidence that it 6While in his motion to compel production of documents petitioner requests copies of all delegation orders applying to the job description, position, and GS level of Ms. Miller (who signed the notice), he concedes: "[He] is not challenging the authority of Janet A. Miller to sign the notice". He states his purpose for the request as follows: The information responsive to this request is necessary because it is petitioner's responsibility to make sure that the agent acting for the government, in this case, Janet A. Miller stays within the bounds of her authority. * * * When challenged, those posing as government officers and agents are required to affirmatively prove whatever authority they claim. Petitioner's request manifests a frivolous purpose. See, e.g., Kaye v. Commissioner, T.C. Memo. 2003-74, 2003 WL 1138308, at *2-*3. - 7 - [*17] is appropriate to impose the releva t addition to tax. Sec. 7491(c). However, if a taxpayer fails to assign err r to an addition to tax, he is deemed, under Rule 34(b)(4), to have conceded that issue; and the Commissioner need not produce evidence that that addition to ta is appropriate. Funk v. Commissioner, 123 T.C. 213, 218 (2004); Swain v. Co issioner, 118 T.C. 358, 363 (2002); DeVries v. Commissioner, T.C. Memo. 011-185, 2011 WL 3418248, at *10. In the notice, respondent determin d that petitioner is liable for each year in issue for additions to tax, under section 651(a)(2), for failure to pay the amount of tax shown on a return, and, under sec ion 6654(a), for failure to pay estimated tax. Section 6651(a)(2) imposes an addi ion to tax where the taxpayer fails to pay the amount shown on a return by the pre cribed date unless the taxpayer shows - that such failure is due to reasonable ca se and not due to willful neglect. The amount of the addition to tax is 0.5% of he amount of the tax for each month or fraction thereof during which the tax re ains unpaid, up to a maximum addition of 25%. The addition to tax applies only hen an amount of tax is shown on a return. Cabirac v. Commissioner, 120 .C. 163, 170-(2003). A substitute for return prepared by the IRS, acting for th Secretary, under section 6020(b) is treated as the taxpayer's return for purp ses of section 6651(a)(2). Sec. 6651(g)(2); Wheeler v. Commissioner, 27 T.C. at 208-209. - 18 - [*18] Section 6654(a) and (b).provides for an addition to tax in the case of a taxpayer's underpayment of a required installment of estimated tax. Each required installment of estimated tax is equal to 25% of the "required annual payment", which in turn is equal to the lesser of (1) "90 percent of the tax shown on the return for the taxable year (or, if no return is filed, 90 percent of the tax for such year)", or (2) if the individual filed a return for the preceding taxable year, 100% of the tax shown on that return. Sec. 6654(d)(1)(A) and (B). In neither the petition nor the amended petition does petitioner, for either year in issue, assign error to, or coñtest in any way, the additions to tax under section 6651(a)(2) or 6654. Accordingly, he is deemed to have conceded those issues, and we need not consider whether respondent met his burden of production as to the propriety of those additions to tax. We shall sustain the additions. B. Addition to Tax Under Section 6651(f) We next address whether petitioner is liable for the addition to tax under section 6651(f) for each year in issue. Section 6651(f) imposes an addition to tax of up to 75% of the amount of tax required to be shown on the return where the failure to file a Federal tax return is due to fraudulent conduct. In determining whether a taxpayer's failure to file is fraudulent, we consider the same elements considered in imposing the section 6663(a) civil fraud penalty, Clayton v. . - 19 - [*19] Commissioner, 102 T.C. at 653, bu focus on the taxpayer's-decision to not file his return when due, Enayat v. Co issioner, T.C. Memo. 2009-257, 2009 WL 3763085, at *24. The Commissione bears the burden o*f proof. See sec. 7454(a); Rule 142(b). To establish fraud, the Commissioner must show by clear and convincing evidence both that (1) the taxpayer underpaid his income tax for each year in issue and (2) at least some p rtion of each such underpayment was due to fraud. See DiLeo v. Commission r, 96 T.C. 858, 873 (1991), affd, 959 F.2d 16 (2d Cir. 1992). Thus, in establis ing the underpayment,'the Commissioner may not rely on the taxpa er's failure to meet his burden of proving error in the Commissioner's determinatidn as to the deficiencies. Id. The Commissioner need not prove the precis amount of the underpayment resulting from fraud, but only that some part of th underpayment of tax for each year in issue is attributable to fraud. Petzoldt v. Commissioner, 92 T.C. 661, 699 (1989). We must determine whether petiti ner's failure to file his tax returns for the years in issue was fraudulent. 1. Underpayment of Ta "Where allegations of fraùd are i tertwined with unreported and indirectly reconstructed income (e.g., under the ba k deposits method), it is properly part of the Commissioner's case to investigate nd negative reasonable explànations of - 20 - [*20] nontaxable sources advanced by the taxpayer." Scott v. Commissioner, T.C. Memo. 2012-65, 2012 WL 798039, at *6; see Holland v. United States, 348 U.S. 121, 135-136 (1954). Where, as in this case, the taxpayer has not appeared at trial and has not filed any briefs in opposition to the Commissioner's position, he has not advanced specific nontaxable sources; and the Commissioner's proof of a likely taxable source of deposits is sufficient to meet his burden of establishing unreported income. Scott v. Commissioner, 2012 WL 798039, at *6; see United States v. Massei, 355 U.S. 595 (1958). The Commissioner must not only show that the taxpayer had unreported income for each year in issue but that he underpaid his tax. Scott v. Commissioner, 2012 WL 798039, at *6. Respondent has established by clear and convincing evidence that petitioner underpaid his tax for each year in issue. As detailed in our analysis above, respondent's bank deposits analysis shows by clear and convincing evidence that petitioner underreported his income by $52,957 and $71,350 for the years in issue, by failing to report income from his pool-cleaning business and interest credited to the bank account. Petitioner makes no argument as to nontaxable sources or that he has unclaimed deductions or credits that reduce the tax burden attributable each year to his unreported income. Id. at *10. On each of the section 6020(b) returns for the years in issue, respondent accorded petitioner a standard deduction and one - 1 - [*21] personal exemption and correctly c lculated a tax liability of $7,166 and $11,331, respectively, which correspond to the tax tables in effect for the years in issue. Petitioner's underreporting of inco e resulted each year in his underpaying his tax. Respondent has thus shown by cle r and convincing evidence that petitioner underreported his gross income and, con equently, underpaid his tax for each year m issue. 2.. Fraudulent Intent The second prong of the fraud test requires the Commissioner to prove that, for each year, the taxpayer's failure to fil an income tax return was due to fraud. Fraud for that purpose is defined as "int ntional wrongdoing designed to evade tax believed to be owing." DiLeo v. Comm ssioner, 96 T.C. at 874. In other words, the Commissioner must prove that;"the taxpayer intended'to conceal, mislead, or otherwise prevent the collection of taxes by not filing his retuiT1 when due." Zhadanov v. Commissioner, T.C. Memo. 2002-104, 2002 WL 731708, at *9. A fraudulent state of mind may be proved by circumstantial evidence because direct proof of the taxpayer's intent is rarely a ailable. DiLeo v. Commissioner, 96 T.C. at 874. - 22 - [*22] Over the years, courts have developed a nonexclusive list of factors that demonstrate fraudulent intent. Those badges of fraud include: (1) understatement of income, (2) maintenance of inadequate records, (3) failure to file tax returns, (4) implausible or inconsistent explanations of behavior, (5) concealment of income or assets, (6) failure to cooperate with tax authorities, (7) engaging in illegal activities, (8) an intent to mislead which may be inferred from a pattern of conduct, (9) lack of credibility of the taxpayer's testimony, (10) filing false documents, and (11) dealing in cash. ,, Browning v. Commissioner, T.C. Memo. 2011-261, 2011 WL 5289636, at *13 (and cases cited thereat). "Although no single factor is necessarily sufficient to establish fraud, a combination of factors is more likely to constitute persuasive evidence." Id. "[A]cts committed subsequent to the due date of a return may be relevant evidence of a taxpayer's intent in failing to file that return." Sherrer v. Commissioner, T.C. Memo. 1999- 122, 1999 WL 203812, at *12, affd, 5 Fed. Appx. 719 (9th Cir. 2001). The following factors indicate petitioner's fraudulent intent during each year m issue. [*23] a. Understatemen of Income - 3 - "A pattern of consistent underrep rting of income, especially when accompanied by other circumstances sh ing an intent to conceal, justifies the inference of fraud." Parks v. Commissi ner, 94 T.C. 654, 664 (1990). In failing to file his tax returns for the years in iss e, petitioner underreported his income by more than $124,000 over that two-year eriod. In the context of the factual circumstances discussed below, we consider that two-year pattern of consistent underreporting of income an indicium o fraud. See, e.g., Delvecchio v. Commissioner, T.C. Memo. 2001-130, 001 WL 617192, at *5 ("Two years of substantial understatement may support finding of fraud."), aff'd, 37 Fed. Appx. 979 (11th Cir. 2002). . b. Concealment of Assets ''Concealing assets coupled with failure to file tax returns is a strong indication of fraud.'' Freidus v. Commi sioner, T.C. Memo. 1999-195, 1999 WL 391919, at *10. Petitioner took affirma ive steps to conceal income derived from his pool-cleaning business. Petitioner aintained no bank accounts in his name and deposited business receipts into an ccount held in the name of "Freedom Church of Revelation Restoration Mini tries", effectively hiding that income because that account was held under th Freedom Church of Revelaiion - 24 - [*24] Restoration Ministries' identification number. The record shows no evidence of the account's use for church purposes, only bank transactions related to petitioner's pool business. We cannot conceive of a purpose for depositing pool business receipts into that bank account other than to conceal their existence from respondent and avoid tax liability. Further, petitioner failed to deposit numerous receipts from customers during the years in issue, making it difficult for respondent to identify those receipts and charge that income to petitioner. Petitioner's use of the Freedom Church of Revelation Restoration Ministries' bank account as a repository for his business income coupled with his failure to deposit numerous business receipts is clear and convincing evidence of his attempt to conceal income for the years in issue. c. Implausible or Inconsistent Explanations of Behavior Petitioner's inconsistent explanations to Revenue Agent Tae for his failure to file tax returns also furnishes clear and convincing evidence of his attempt to conceal his pool-cleaning business income by failing to file returns. In response to Revenue Agent Tae's inquiry concerning his tax returns for the years in issue, petitioner sent a letter dated March 11, 2008, in which he disputed his obligation to pay income tax and denied his status as a taxpayer under the Internal Revenue Code. However, as of that date (March 2008), petitioner had engaged a tax return - 5 - [*25] preparer to prepare his 2005 and 2 06 tax returns and, as far as we can determine, timely filed those returns. M reover, while disputiñg throughout the examination his obligation to file return for the years in issue, petitioner engaged a tax return preparer to prepare his 2007 tax return, and, again we assume, timely filed that return. He later filed a tax retu for 2008. Petitioner has not attempted to explain why he believed that he was ot a taxpayer in, and thùs not required to file returns for, the years in issue but ac ieved that status in 2005-08. In his March 11, 2008, letter, petitioner infornded Revenue Agent Tae that he had "filed returns in past years out of total ignoran e of the tax laws." Even if that was true, at the time of that letter, petitioner had a ready prepared, if not filed, his 2007 return. His explanation for failing to fil tax returns could have no other purpose: than concealment of his income from th pool-cleaning business and avoidance of paying tax believed to be owed. d. Failure To Co perate With Tax Autliorities Petitioner did not cooperate with evenue Agent-Tae's requests for petitioner's tax returns for the years in i sue or his requests for records and information concerning petitioner's tax iability for those years. Petitioner refused to meet with Revenue Agent Tae to dis uss petitioner's missing tax returns, instead denying his liability for the "so-called i come tax" and claiming sovereign - 26 - [*26] immunity from administrative actions brought by the IRS. Petitioner thus misled Revenue Agent Tae as to the existence of the bank account and the taxable income held therein. Revenue Agent Tae was forced to issue third-party inquiries and summonses to eventually uncover the bank account's existence, its connection with petitioner's pool-cleaning business, and ultimately the taxable business receipts for the years in issue. We conclude that petitioner's failure to cooperate with respondent's agent is indicative of a fraudulent failure to file. - 3. Conclusion Respondent has proven by clear and convincing evidence that petitioner's failure to file his tax returns for the years in issue was fraudulent. Petitioner has not proven that his failure to.do so was due to reasonable cause and not due to willful neglect. See sec. 6651(a)(1). Accordingly, we conclude that petitioner is liable for the addition to tax under section 6651(f) for each year in issue. Because we find petitioner so liable, we do not address respondent's alternative argument of the applicability of the addition to tax for failure to file timely under section 6651(a)(1). [*27] C. Section 6673(a)(1) Penalty . On June 14, 2011, we ordered peti:ioner to show cause why the Court should not impose a penalty upon him ur der section 6673(a)(1). Petitioner failed to obey the order. Under section 6673(a)(1)(A) and (B), this Court may require a taxpayer to pay a penalty not in excess of $25,000 if (1) the taxpayer has instituted or maintained a proceeding primarily for delay, or (2) the taxpayer's position.in such. proceeding is "frivolous or groundless". A taxpayer's position is frivolous "if it is contrary to established law and unsupported by a reasoned, colorable argument for change in the law." Goff v. Commissioner, 135 T.C. 231,'237 (2010). We may consider sua sponte whether to impose upon a taxpayer a section 6673(a)(1) penalty. E3, Hyde v. Commissioner, T.C. Memo. 2011-104, 2011 WL·1900152, at *6, affd, 471 Fed. Appx. 537 (8th Cii. 2012). As stated supra, petitioner advanced only meritless arguments as to why he is not required to pay tax on the Schedulb C business gross receipts and interest income at issue herein. We warned petitioner on several occasions that we would consider imposing on him a section 6673 penalty. Moreover, petitioner refused to heed our instruction to appear for trial, did not comply with the briefing schedule we set, and disobeyed our order to show cause. We can see no reason for that - 28 - [*28] defiance other than to delay respondent's collection of Federal income tax due and owing for the years in issue, which is a separate basis for imposing a section 6673(a)(1) penaltý. We likewise see no reason other than delay for petitioner's unwarranted discovery requests, which we have set out in some detail, and which further justify a penalty. Cf. Powell v. Commissioner, T.C. Memo. 2009-174, 2009 WL 2169877, at *6 ("Effecting delay and unnecessary responses through abuse of the discovery process is an appropriate basis for an award under section 6673(a)(2)."), affd sub nom. Barringer v. U.S. Tax Court, 408 Fed. Appx. 381 (D.C. Cir. 2010). Petitioner has wasted both the Court's and respondent's time and deserves a substantial penalty. Accordirigly, we shall make our order to show cause absolute and impose upon petitioner a penalty under section 6673(a)(1) of $15,000. III. Conclusion Petitioner is liable for the deficiencies, penalties, and additions to tax as determined herein. An appropriate order will be issued, and decision will be entered for respondent.