Court Opinion

ID: 4622346
Source: CourtListenerOpinion
Date Created: 2020-11-21 02:49:12.807358+00
Date Added: 2024-06-11T07:56:10.402769
License: Public Domain

J. A. CARTER, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, RespondentCarter v. CommissionerDocket No. 27417-83.United States Tax CourtT.C. Memo 1985-360; 1985 Tax Ct. Memo LEXIS 270; 50 T.C.M. (CCH) 463; T.C.M. (RIA) 85360; July 22, 1985.  *270 Held, P is liable for the addition to tax for fraud under sec. 6653(b), I.R.C. 1954, for 1981.  Frederick W. Vollrath, for the petitioner. Willie Fortenberry, for the respondent.  SIMPSONMEMORANDUM FINDINGS OF FACT AND OPINION SIMPSON, Judge: The Commissioner determined a deficiency of $8,349.00 in the petitioner's Federal income tax for 1981 and an addition to tax of $4,175.00 pursuant to section 6653(b) of the Internal Revenue Code of 1954. 1 The sole issue for decision is whether the petitioner is liable for the addition to tax for fraud under section 6653(b) for 1981. *271  FINDINGS OF FACT Some of the facts have been stipulated, and those facts are so found. The petitioner, J. A. Carter, was a legal resident of Seffner, Fla., at the time he filed his petition in this case.  He filed tax protestor type documents in lieu of a proper Federal income tax return for 1981. During 1981 and 1982, the petitioner was a member of the Keystone Society, an organization that advocated that wages are not taxable income.  During 1981, he received wages totaling $28,024.24, and he received dividend income of $279.00 and interest income of $63.00.  The petitioner timely received from his employer a Form W-2 which showed the wages paid to him in 1981.  However, he reported none of such income on the documents that he filed for 1981.  Prior to 1981, the petitioner filed Federal income tax returns which reported his wages as income. During 1981 and 1982, the petitioner submitted Forms W-4 (Employee's Withholding Allowance Certificate) to his employer.  On such forms, he claimed that he was exempt from Federal income tax withholding. In his notice of deficiency, the Commissioner determined that the petitioner had received $28,166 in unreported taxable income in*272  1981.  In addition, he determined that the petitioner was liable for the addition to tax for fraud under section 6653(b) for 1981. OPINION The petitioner has conceded that he is liable for the deficiency as determined by the Commissioner.  Thus, the sole issue for decision is whether the petitioner is liable for the addition to tax for fraud for 1981. Section 6653(b) provides that if any part of any underpayment of tax required to be shown on a return is due to fraud, there shall be added to the tax an amount equal to 50 percent of the underpayment.  The Commissioner has the burden of proving, by clear and convincing evidence, that some part of the underpayment for each year was due to fraud.  Sec. 7454(a); Rule 142(b), Tax Court Rules of Practice and Procedure; Levinson v. United States,496 F.2d 651">496 F.2d 651, 654-655 (3d Cir. 1974); Miller v. Commissioner,51 T.C. 915">51 T.C. 915, 918 (1969). The Commissioner will carry his burden if he shows that the taxpayer intended to evade taxes which he knew or believed that he owed by conduct intended to conceal, mislead, or otherwise prevent the collection of such taxes.  Stoltzfus v. United States,398 F.2d 1002">398 F.2d 1002, 1004 (3d Cir. 1968);*273 Webb v. Commissioner,394 F.2d 366">394 F.2d 366, 377-378 (5th Cir. 1968), affg. a Memorandum Opinion of this Court; Acker v. Commissioner,26 T.C. 107">26 T.C. 107, 111-112 (1956). The existence of fraud is a question of fact to be resolved upon consideration of the entire record. Gajewski v. Commissioner,67 T.C. 181">67 T.C. 181, 199 (1976), affd. without published opinion 578 F.2d 1383">578 F.2d 1383 (8th Cir. 1978). Fraud is never presumed, but rather must be established by affirmative evidence. Beaver v. Commissioner,55 T.C. 85">55 T.C. 85, 92 (1970). Circumstantial evidence is permitted where direct evidence of fraud is not available. Spies v. United States,317 U.S. 492">317 U.S. 492, 499 (1943); Rowlee v. Commissioner,80 T.C. 1111">80 T.C. 1111, 1123 (1983); Gajewski v. Commissioner,67 T.C. at 200. Fraud may properly be inferred where an entire course of conduct establishes the necessary intent.  Rowlee v. Commissioner,supra;Stone v. Commissioner,56 T.C. 213">56 T.C. 213, 223-224 (1971). The precise amount of underpayment resulting from fraud need not be proved. Otsuki v. Commissioner,53 T.C. 96">53 T.C. 96, 105 (1969).*274  The statute requires only a showing that "any part" of an underpayment results from fraud.However, the Commissioner must show fraud resulting in an underpayment for each taxable year in which fraud has been asserted. Otsuki v. Commissioner,supra.In the present case, the evidence in the record clearly and convincingly establishes that the petitioner fraudulently underpaid his tax during 1981.  He properly filed returns for years prior to 1981; yet, the documents that he submitted for 1981 clearly did not constitute a return within the meaning of section 6011 and the regulations thereunder.  See Jarvis v. Commissioner,78 T.C. 646">78 T.C. 646 (1982); Thompson v. Commissioner,78 T.C. 558">78 T.C. 558 (1982); Reiff v. Commissioner,77 T.C. 1169">77 T.C. 1169 (1981). In addition, during 1981 and 1982, the petitioner submitted to his employer false Forms W-4.  On such forms, he falsely claimed that he was exempt from withholding.  While failure to file is not conclusive evidence of fraud, it is a factor worthy of consideration, particularly when coupled with the submission of false Forms W-4.  Hebrank v. Commissioner,81 T.C. 640">81 T.C. 640, 642 (1983);*275 Habersham-Bey v. Commissioner,78 T.C. 304">78 T.C. 304, 312-314 (1982). The petitioner seeks to avoid imposition of the addition to tax for fraud by claiming that he had no fraudulent intent to underpay his Federal income tax for 1981.  He contends that he naively believed the position advocated by the Keystone Society, that wage income was not taxable.  Since that time, he has come to realize that the position advocated by the Keystone Society is erroneous. We do not find the petitioner's contention to be convincing.  He filed proper returns in prior years; he knew that his fellow citizens paid Federal income taxes on their wages. The petitioner was clearly aware of his obligation to file a proper income tax return, and it is also clear that he knowingly and willfully failed to fulfill such obligation for 1981.  See Hebrank v. Commissioner,supra at 641-644; Rowlee v. Commissioner,supra at 1123-1126. The determination of whether there was fraud is based on the circumstances existing at the time of underpayment; the fact that the petitioner subsequently realized that he had made a mistake does not alter his intent at the time he underpaid*276  his tax for 1981.  Bennett v. Commissioner,30 T.C. 114">30 T.C. 114, 122-123 (1958); Hirschman v. Comissioner,12 T.C. 1223">12 T.C. 1223, 1228-1230 (1949). Based on the record in the present case, we hold that the Commissioner has, by clear and convincing evidence, proved that the underpayment of the petitioner's tax for 1981 was due to fraud. Decision will be entered for the respondent.Footnotes1. All statutory references are to the Internal Revenue Code of 1954 as in effect during 1981.↩