Court Opinion

ID: 2778303
Source: CourtListenerOpinion
Date Created: 2015-02-10 21:01:33.832527+00
Date Added: 2024-06-11T11:28:08.697934
License: Public Domain

FILED
                           NOT FOR PUBLICATION                                 FEB 10 2015

                                                                          MOLLY C. DWYER, CLERK
                    UNITED STATES COURT OF APPEALS                          U.S. COURT OF APPEALS

                           FOR THE NINTH CIRCUIT

CALIFORNIA RADOMES, INC.; et al.,                No. 12-73702

              Petitioners - Appellants,          Tax Ct. Nos. 6182-10
                                                              6178-10
  v.

COMMISSIONER OF INTERNAL                         MEMORANDUM*
REVENUE,

              Respondent - Appellee.

                           Appeal from a Decision of the
                                    Tax Court

                           Submitted January 12, 2015**
                             San Francisco, California

Before: WALLACE, M. SMITH, and FRIEDLAND, Circuit Judges.

       Gary Garcia and California Radomes, Inc. (CRI) appeal from the Tax

Court’s imposition of penalties under Internal Review Code (IRC) § 6663(a) for

fraudulent intent to make substantial underpayments of income tax in the years

        *
             This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
        **
             The panel unanimously concludes this case is suitable for decision
without oral argument. See Fed. R. App. P. 34(a)(2).
2005, 2006, and 2007. We have jurisdiction pursuant to 26 U.S.C. § 7482(a)(1),

and we affirm.

      Garcia and CRI argue that the Tax Court clearly erred in determining that

petitioners made underpayments with fraudulent intent, because their failure to

disclose corporate holding account information and transfers made to Garcia from

CRI were honest mistakes.

      Under IRC § 6663(a), a taxpayer is liable for a penalty equal to 75 percent of

a tax underpayment when the underpayment is made with fraudulent intent.

Fraudulent intent can be determined by circumstantial evidence of fraud based on

certain indicia or “badges” of fraudulent intent. Bradford v. Comm’r, 796 F.2d 303,

307 (9th Cir. 1986). Such badges may include implausible or inconsistent

explanations of behavior, inadequate records, concealing assets, and failure to

cooperate with tax authorities. Edelson v. Comm’r, 829 F.2d 828, 832 (9th Cir.

1987). The Tax Court identified several badges of fraud in the record to support a

finding of fraudulent intent, and, as we review its decision for clear error, we are

not “left with the definite and firm conviction that a mistake has been committed.”

See Sparkman v. Comm’r, 509 F.3d 1149, 1155 (9th Cir. 2007) (internal quotation

marks omitted).

                                          2
      Petitioners argue that their failure to report transfers made between Garcia

and CRI were honest mistakes, and that they relied on their accountant in good

faith to file taxes properly. To the contrary, petitioners did not disclose the

holding account information to their accountant or to the IRS during the audit, and

CRI’s “loan to shareholder account” records were inconsistent with transfers

involving the holding account. It is true that CRI’s employee, Ms. Simon,

testified at trial that she gave the holding account statements to Ostrem, the

accountant, for the tax returns when he inquired whether such an account existed.

However, the Tax Court found Ostrem’s conflicting testimony more credible.

      Further, Garcia told the IRS agent that CRI’s payments on his home

mortgage from the holding account were a company investment in real estate.

His explanation is inconsistent with mortgage deductions claimed on his personal

tax returns, and there was no evidence presented that CRI owned the home.

      In light of this evidence, the Tax Court did not clearly err in finding that

Garcia and CRI made substantial tax underpayments with fraudulent intent in

2005, 2006, and 2007.

      AFFIRMED.

                                          3