Failure to Appear, Tax Protester Arguments Result in Penalty

Lisa M. Goldberg, Subin Seth, and Andrew Michael Tiktin, for respondent.

[*3]

                                               Additions to tax

We set these cases for trial during a trial session of the Court that commenced on January 30, 2012, in Courtroom 1524, Federal Building, 51 S.W. 1st Avenue, Miami, Florida. The cases were specially set to be called at 9:30 a.m. on January 31, 2012, and were on that date and at that time so called. Petitioner failed to appear. Respondent moved that, on account of his failure to appear at trial and on account of his failure to cooperate with respondent in preparing these cases for trial, petitioner be held in default and decisions be entered against him with respect to the deficiencies in and additions to tax for all years.³ Respondent also moved the Court to impose on petitioner a section 6673(a)(1) penalty with respect to each case because petitioner's positions in these proceedings are [*5] frivolous and these proceedings have been instituted and maintained by petitioner primarily for delay.

For the reasons that follow, we will grant the motions, sustain the deficiencies and additions to tax, and impose penalties.

Respondent filed timely answers to both petitions. In each answer, respondent denied petitioner's allegations of error with respect to the deficiencies and set forth specific allegations in support of the additions to tax for fraudulent failure to file.

In paragraph 7 of his answer in docket No. 29579-09, respondent makes the following allegations in support of his determination that petitioner is liable for the fraudulent failure to file penalty for 1999 through 2005:

 Date on check                      Payor                   Amount

In pertinent part, Rule 123(a) provides:

Respondent argues that petitioner's failure to appear when these cases were called for trial on January 31, 2012, constitutes a default and that it is appropriate for the Court to enter decisions against him upholding the determined deficiencies [*13] and additions to tax.⁴ Respondent relies on admissions and deemed stipulations to establish certain facts not averred in his answers.

We hold petitioner in default. He has failed to comply with the Rules of the Court. He has not cooperated in the preparation of these cases for trial, he has failed to comply with Court orders, and he did not appear for trial. His responses are filled with tax-protester rhetoric. Such conduct provides ample basis for holding him in default. See, e.g., id. We shall address separately the deficiencies and additions to tax.

B. Deficiencies in Tax

Petitioner admits that he did not file Federal income tax returns for 1999 through 2007. He had taxable income of $153,136, $164,621, $177,768, $269,501, $228,518, $745,112, $341,610, $359,510, and $64,137 for those years, [*14] respectively, resulting in deficiencies in the amount respondent determined for each year. We will sustain respondent's determinations of deficiencies in tax.

C. Addition to Tax for Fraudulent Failure To File Return

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 income tax return is due to fraud. "[R]espondent must prove by clear and convincing evidence that petitioner underpaid his income tax and that some part of the underpayment was due to fraud." Clayton v. Commissioner, 102 T.C. 632, 646 (1994). There is no question that petitioner's failure to file a return for each of the years in issue resulted in underpayments for each year. To establish fraudulent intent, the Commissioner must prove that a taxpayer intended to evade a tax known or believed to be owed by conduct intended to conceal, mislead, or otherwise prevent the collection of tax. See, e.g., DiLeo v. Commissioner, 96 T.C. 858, 874 (1991), aff'd, 959 F.2d 16 (2d Cir. 1992); Mohamed v. Commissioner, T.C. Memo. 2013-255, at *20; Akland v. Commissioner, T.C. Memo. 1983-249, 1983 Tax Ct. Memo LEXIS 536, at *45, aff'd, 767 F.2d 618 (9th Cir. 1985). Not only do respondent's averments show such intent, but petitioner is deemed to have admitted that his failure to file returns for the years in issue "was not due to mistake" and "was due to * * * [his] fraudulent intent to evade taxes". We have [*15] adequate grounds on which to sustain respondent's section 6651(f) additions to tax for all years in issue.

D. Addition to Tax for Failure To Pay Tax

Section 6651(a)(2) provides for an addition to tax when a taxpayer fails to pay timely the tax shown on a return, unless the taxpayer proves that the failure was due to reasonable cause and not due to willful neglect. A substitute for return prepared by the Commissioner pursuant to section 6020(b) is treated as the "return" filed by the taxpayer for purposes of section 6651(a)(2). See sec. 6651(g). For each month or fraction thereof for which a failure to pay continues, section 6651(a)(2) adds 0.5% of the tax required to be shown on such return, up to a maximum addition of 25%. The substitutes for returns respondent prepared for the years in issue show tax due for each year, and petitioner has not made any payments toward those liabilities. We will sustain respondent's section 6651(a)(2) additions to tax for all years in issue.

E. Addition to Tax for Failure To Pay Estimated Income Tax

Section 6654(a) and (b) provides for an addition to tax in the event of an individual's underpayment of a required installment of individual estimated tax. Each required installment is equal to 25% of the "required annual payment", which, in turn, is generally equal to the lesser of (1) 90% of the tax shown on the [*16] individual's return for that year or, if no return is filed, 90% of his or her tax for such year, or (2) if the individual filed a return for the immediately preceding year, 100% of the tax shown on that return. Sec. 6654(d)(1)(A) and (B). The due dates of the required installments for a calendar taxable year are April 15, June 15, and September 15 of that year and January 15 of the following year. Sec. 6654(c)(2). For purposes of section 6654, an individual's tax consists of income and self-employment tax determined before the application of any wage withholding credits which, under section 6654(g)(1), are treated as payment of estimated tax. See sec. 6654(f). Section 6654(e) provides for certain specified exceptions to the applicability of section 6654, none of which is applicable to petitioner.

Because petitioner did not file a return for any year in issue, nor for 1998, his "required annual payment" for each year was 90% of the tax owed for that year. See sec. 6654(d)(1)(B)(i). Respondent's records show that petitioner did not make any estimated tax payments during any of the years in issue. Therefore, we sustain respondent's determination of a section 6654 addition to tax for each year.

[*18] By initiating these groundless proceedings, petitioner has wasted the Court's and respondent's limited resources and deserves a substantial penalty. We will, therefore, require petitioner to pay a penalty under section 6673(a)(1) of $25,000 in each of these consolidated cases.

To reflect the foregoing,

Appropriate orders will be issued, and decisions will be entered under Rule 155.

² Unless otherwise indicated, all 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. All dollar amounts have been rounded to the nearest dollar.

³ In that motion, respondent asks that we find sec. 6651(f) additions to tax of $34,483, $38,588, $36,701, $66,827, $45,662, $117,883, and $72,524, for the tax years 1999, 2000, 2001, 2002, 2003, 2004, and 2005, respectively. Those amounts are less than the amounts respondent asserted in his answer in docket No. 29579-09. We shall assume that respondent concedes the differences as a reduction in the additions.

⁴ At least with respect to the deficiencies in tax that he determined, respondent states that dismissal of petitioner's cases pursuant to Rule 123(b) on account of his failure to properly prosecute would reach the same result that would be reached if we hold him in default under Rule 123(a). That is true. We have said: "A Rule 123(b) dismissal, as a sanction against petitioner, is available as to those issues for which petitioner bears the burden of proof. A Rule 123(a) default would be the proper sanction against petitioner as to those issues for which respondent bears the burden of proof." Lopez v. Commissioner, T.C. Memo. 2001-93, 2001 WL 388758, at *4 (citing Smith v. Commissioner, 926 F.2d 1470, 1476 (6th Cir. 1991), aff'g 91 T.C. 1049 (1988)). Petitioner bears the burden of proof with respect to the determined deficiencies. See Rule 142(a). Nevertheless, respondent has moved that we hold petitioner in default and dismiss under Rule 123(a), and we will do so.