                          T.C. Memo. 1996-287



                        UNITED STATES TAX COURT



                 STEVEN J. ROMER, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 4695-94.                          Filed June 20, 1996.



     Steven J. Romer, pro se.

     Elizabeth P. Flores and Lyle B. Press, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     SWIFT, Judge:   Respondent determined deficiencies in

petitioner’s Federal income taxes, additions to tax, and

penalties as follows:
                                   - 2 -


                              Additions to Tax and/or Penalties
                         Sec.           Sec.       Sec.        Sec.
Year     Deficiency   6651(a)(1)     6653(b)(1)   6661         6663

1988     $ 208,798         --        $156,599    $52,200       --
1989      1,418,713    $354,678         --          --     $1,064,035
1990        696,518        --           --          --        522,389


       Unless otherwise indicated, all section references are to

the Internal Revenue Code, and all Rule references are to the Tax

Court Rules of Practice and Procedure.

       The primary issues for decision are:        (1) The collateral

estoppel effect of petitioner’s State court conviction for

embezzlement; (2) the amount of income petitioner received by

embezzling funds from his legal clients and the amount of income

petitioner received from a check-kiting scheme; and (3) whether

petitioner is liable for a fraud addition to tax for 1988 and

fraud penalties for 1989 and 1990.


                            FINDINGS OF FACT

       Many of the facts have been stipulated and are so found.

Petitioner resided in New York at the time of the filing of his

petition.

       During the years in issue, petitioner was a practicing

attorney in New York State.


$741,065 Received From Gabrielle Votano

       In 1988, petitioner established a trust on behalf of

Gabrielle Votano (Votano) into the corpus of which was
                               - 3 -

transferred $741,065 in life insurance proceeds that Votano

inherited from her father.   Petitioner was designated as trustee

of this trust, and it was intended by Votano that petitioner use

the $741,065 to purchase for the trust a suitable investment

approved by Votano.

     On November 9, 1988, petitioner transferred the $741,065

received from Votano into a "special" checking account in his

name at Chemical Bank.   The $741,065 was not transferred into one

of petitioner's client escrow accounts.

     On or about November 10, 1988, petitioner purchased with the

$741,065 two certificates of deposit at Chemical Bank -- one in

the amount of $341,065 and the other in the amount of $400,000.

Although not completely clear from the record, it appears that

these certificates of deposit were purchased in the name of

petitioner, not in the name of the Votano trust.

     On October 9, 1990, Votano delivered a letter to petitioner

in which she asked that her trust be terminated.   Petitioner

informed Votano that the two certificates of deposit that he had

purchased with the $741,065 had just been renewed and therefore

that the funds were not readily available.

     On or about January 3, 1991, Votano received from petitioner

a letter in which petitioner falsely claimed, among other things,

that he had been diagnosed with an inoperable and incurable brain

tumor and that he had only 2 months to live, and petitioner

correctly acknowledged in the letter that Votano's $741,065 was
                               - 4 -

no longer available.   Petitioner’s letter explains, in part, as

follows:


         To get right to the point, your money is no longer
     available, I’m sorry to say. I did, however, take out a
     very large life insurance policy, $23 million, just before
     my condition was diagnosed. If you make a fuss or contact
     the authorities, the insurance company will use it as an
     excuse to claim fraud and avoid paying the face of the
     policy. You will be paid in full in a very short time.

         By a similar letter I have informed my wife of this
     obligation * * *. * * *

         I used the money to feed some hungry and poverty-
     stricken people. It didn’t go into my home or family. In
     fact, my home is mortgaged for about twice of what it is
     worth. Your only method of being repaid is through the life
     insurance. I deeply regret the whole episode.

         Please don't and ask your attorney to not contact
     Chemical Bank. It will do you no good, since there is no
     money there and the insurance company will use that as an
     excuse to not pay the policy.


     Neither Votano nor the trust ever received back from

petitioner any portion of the $741,065.   As a result of the loss

of the $741,065, Votano received $100,000 from the New York State

Lawyers’ Fund for Client Protection.


$450,000 Received From William Marion’s Family Trusts

     At the request of William Marion, a long-time legal client,

petitioner, in 1974, established a family trust on behalf of the

two daughters and one son of William and Lillian Marion.    In

1985, again at the request of William Marion, petitioner
                                - 5 -

established another trust on behalf of Joseph Marion, the only

son of William and Lillian Marion.

     Both trusts were funded with stock in the William Marion

Co., a closely held corporation controlled by the Marion family

(the family corporation).    The corporate stock to be held in the

two trusts was to be conveyed to the Marion children 10 years

after the death of William and Lillian Marion.   These trusts will

be referred to hereinafter collectively as the Marion Family

Trusts.

     From the time of formation of the Marion Family Trusts until

early 1989, petitioner and the accountant for the Marion family

were co-trustees on each of the trusts.   In February of 1989,

petitioner became sole trustee of the Marion Family Trusts.

Petitioner was not authorized to use any of the trust property

for his personal purposes.

     In early 1989, William and Joseph Marion and the other

family members agreed to sell the stock in the family corporation

that was held by the Marion Family Trusts for $6.1 million in

cash.   Upon closing of the sale on or about March 7, 1989, and

after cash disbursements of $2,013,000 were made to William and

Lillian Marion, petitioner was to transfer the $4,087,000 balance

of the sales proceeds into checking accounts in the name of the

Marion Family Trusts.   William Marion instructed petitioner to

purchase for the trusts certificates of deposit having a 3-month

maturity.
                               - 6 -

     Petitioner, however, transferred the $4,087,000 balance of

the sales proceeds into a "special" checking account in his name

at Chemical Bank.   The Marion Family Trusts were not reflected on

Chemical Bank's records as having an interest in the account.

The account into which the $4,087,000 was transferred did not

constitute one of petitioner's client escrow accounts.

     On or about March 7, 1989, using the $4,087,000 that had

been obtained from the Marion Family Trusts and that had been

transferred by petitioner into a checking account at Chemical

Bank, petitioner purchased two certificates of deposit at

Chemical Bank in the respective amounts of $2,501,000 and

$1,586,000, in the name of “Steven J. Romer, Trustee,” not in the

name of the Marion Family Trusts.

     Occasionally, petitioner forwarded payments to the Marion

children, as beneficiaries of the Marion Family Trusts,

purportedly representing interest payments on the certificates of

deposit that petitioner had purchased.   State and Federal taxes

due on the quarterly interest payments received on the two

certificates of deposit were paid by petitioner in the name of

the trusts.

     On July 10, 1990, Chemical Bank issued a renewal of a

$1,184,000 certificate of deposit in the name of “Steven J.

Romer, Trustee,” not in the name of the trusts.

     Neither of the Marion Family Trusts, nor any member of the

Marion family, ever received from petitioner any repayment of
                               - 7 -

trust property or of the $4,087,000 originally transferred into

the trusts.

     As a result of the loss of the $4,087,000, each of the two

Marion Family Trusts received $100,000 from the New York State

Lawyers’ Fund for Client Protection.


$975,000 Received From Ira Saferstein

     In late January and early February of 1989, Ira Saferstein

(Saferstein) transferred $975,000 to petitioner, as his attorney,

and Saferstein instructed petitioner to purchase with the

$975,000 two certificates of deposit on Saferstein's behalf.

Saferstein understood that the certificates of deposit were to be

held in trust on his behalf by petitioner.

     In fact, however, petitioner purchased with the $975,000 two

certificates of deposit in petitioner's name, not in the name of

Saferstein.   Petitioner used the two certificates of deposit as

collateral to obtain a personal bank loan.   Petitioner did not

inform the bank that the certificates of deposit were not owned

by him, and petitioner never obtained permission from Saferstein

to use Saferstein’s funds or the two certificates of deposit

purchased with Saferstein’s funds for collateral on a personal

loan nor for any other personal purpose.

     By letter dated late December of 1990 or early January of

1991, Saferstein informed petitioner that the certificates of

deposit that petitioner was supposed to have purchased and to be
                               - 8 -

holding on Saferstein’s behalf should not be renewed on their

next maturity date of January 4, 1991.

     In response to Saferstein’s letter, petitioner gave

Saferstein a copy of the letter that he had sent to Votano,

quoted in part above, and petitioner added the following note to

Saferstein:


         Ira, do not contact Sterling National Bank. There is
     no money there and the insurance company will use it as an
     excuse to avoid paying.


     With the letter to Saferstein, petitioner enclosed a

promissory note indicating that he owed Saferstein $1,144,740,

representing the original $975,000 that petitioner had received

from Saferstein plus accrued interest.

     Saferstein never received back from petitioner any portion

of the $975,000.   As a result of the loss of the $975,000,

Saferstein received $100,000 from the New York State Lawyers’

Fund for Client Protection.


$1.2 Million Received From Judith Ripps

     On June 19, 1990, Judith Ripps (Ripps), another of

petitioner’s legal clients, transferred $1.2 million to

petitioner for the purchase on her behalf of a certificate of

deposit at Chemical Bank.
                                - 9 -

     Ripps never gave petitioner permission to use the $1.2

million, nor the certificate of deposit petitioner purchased with

Ripp’s $1.2 million, as collateral on his personal loans.

     Ripps never received back from petitioner any portion of the

$1.2 million.    As a result of the loss of the $1.2 million, Ripps

received $100,000 from the New York State Lawyers’ Fund for

Client Protection.


$350,000 Received From Banks

     During December of 1990, petitioner obtained $350,000 by

writing checks on checking accounts at Chemical Bank and at

Citibank over which petitioner had control, but in which accounts

there existed insufficient funds to cover the checks petitioner

had written.    No portion of this $350,000 obtained by petitioner

through this check-kiting scheme has been repaid to the banks.

     During 1990, petitioner and his various controlled

corporations sought and obtained loans from Chemical Bank and

from Citibank for various real estate and other business

activities in which petitioner and his controlled corporations

were involved.   In applying for the bank loans, petitioner

represented to personnel of the banks that he had a net worth of

at least $5 million.


$575,000 Received From Bridgehampton Estates

     On August 31, 1990, New Gold Equities Corp. (New Gold), a

corporation controlled by petitioner, borrowed $4.5 million from
                              - 10 -

Bridgehampton Estates, Inc. (Bridgehampton), for the purpose of

obtaining additional working capital.    Petitioner personally

guaranteed this loan, no portion of which has been repaid.

     Of the total $4.5 million in funds obtained from

Bridgehampton, at least $900,000 was deposited by petitioner into

a checking account of New Gold maintained at Chemical Bank.

After these funds were deposited into this New Gold account at

Chemical Bank, checks drawn on the account required the

signatures of both petitioner and Lloyd Goldman (Goldman), the

majority stockholder of Bridgehampton.

     Petitioner was not authorized to sign Goldman’s signature on

New Gold's checks, and petitioner was not authorized to use any

of the funds loaned to New Gold by Bridgehampton for his personal

purposes.

     In connection with petitioner's application for the above

loan from Bridgehampton, petitioner gave Goldman a personal

financial statement reflecting that petitioner had over

$5 million of cash in various bank accounts, a net worth of at

least $16 million, and a gross income for 1990 of $610,000.

     On three checks totaling at least $575,000 drawn on the

account of New Gold at Chemical Bank (in which account the funds

loaned by   Bridgehampton had been deposited), petitioner forged

Goldman's signature and, without permission of Bridgehampton or
                             - 11 -

of Goldman, petitioner obtained at least $575,000.1    Neither New

Gold nor Bridgehampton ever received a repayment of this

$575,000.


$450,000 Received From William Marion

     In 1990, William Marion loaned New Gold and Ryer Equities

Corp. (Ryer), another corporation controlled by petitioner,

$350,000 and $100,000, respectively, for renovation of apartment

buildings owned by each corporation.    These loans to New Gold and

to Ryer were personally guaranteed by petitioner.     Some interest

on these loans was paid but no payments of principal were made,

and the loans remain outstanding.


Petitioner’s Conviction For Embezzlement

     On March 21, 1991, petitioner was indicted by a grand jury

of the County of New York on 14 counts relating to petitioner's

embezzlement of funds from Votano, the Marion Family Trusts,

Saferstein, and Ripps.

     On December 9, 1991, after a 2-1/2 month jury trial,

petitioner was convicted in the Supreme Court of the State of

New York, New York County, on all 14 counts, and on January 6,

1992, petitioner was sentenced to concurrent prison terms, the


1
     Although the evidence indicates that the total amount of the
three forged checks exceeded $575,000, respondent, without
explanation, has charged to petitioner with regard to these items
additional income of only $575,000. We also use respondent's
figure of $575,000.
                                   - 12 -

highest from 7-1/2 to 22-1/2 years.         Petitioner is now

incarcerated in Sing Sing Correctional Facility, Ossining, New

York, in connection with the above conviction for embezzlement.

     On January 10, 1992, in a supplemental judgment and order of

restitution entered by the Supreme Court of the State of New

York, New York County, petitioner was ordered to make restitution

to Votano, the Marion Family Trusts, Saferstein, and Ripps

relating to the embezzlement for which he was convicted in the

total cumulative amount of $7,028,000, as follows:

           Restitution Order In Favor Of              Amount

           Gabrielle Votano                       $  741,000
           The Marion Family Trusts                4,087,000
           Ira Saferstein                          1,000,000*
           Judith Ripps                            1,200,000
                                        Total     $7,028,000

     *   Neither party offers any explanation of why the order of
         restitution provided $1 million with respect to Saferstein
         in spite of the fact that petitioner embezzled $975,000
         from Saferstein.


     Petitioner has not made any of the restitution payments

required under the above judgment.

     On April 28, 1994, petitioner’s conviction was affirmed by

the New York State Appellate Court.

     The funds that petitioner received from his check-kiting

scheme on the accounts at Chemical Bank and Citibank, by forging

Goldman's signature on New Gold's checks, and as loan proceeds

from William Marion, were not the subject of charges brought

against petitioner in the above criminal proceedings.
                               - 13 -

     On March 31, 1992, petitioner was disbarred by the State of

New York.


Petitioner's $23 Million Life Insurance Policy

     As suggested in the above-referenced letter that petitioner

gave to some of his clients, in the fall of 1990, petitioner

applied for a $23 million life insurance policy with Metropolitan

Life Insurance Co., which policy was approved on December 28,

1990.   On January 18, 1991, the policy was canceled because

petitioner's check in payment of the January $7,363 premium was

not honored.


Petitioner’s Federal Income Tax Returns And Respondent’s Audit

     As of December of 1990, petitioner had not filed his Federal

income tax returns for the prior 15 years.    In early December of

1990, respondent's representative contacted petitioner and

inquired as to petitioner's failure to file the above tax

returns.    On January 2, 1991, petitioner untimely filed his

individual Federal income tax returns for 1988 and 1989, and on

January 3, 1991, petitioner timely filed his individual Federal

income tax return for 1990.

     On his untimely filed Federal income tax returns for 1988

and 1989, and on his Federal income tax return for 1990,

petitioner reflected losses from his law practice, no other

income, and no tax due.    On audit, respondent charged to

petitioner as additional income the $7,003,000 that, in
                                              - 14 -

   petitioner's New York State criminal trial, was alleged to have

   been embezzled by petitioner from his clients and the total

   additional $1,375,000 that petitioner received through his check-

   kiting scheme, by forging checks on the New Gold account, and as

   loan proceeds from William Marion.

         The schedule below reflects petitioner's Federal income tax

   returns as filed as well as the adjustments determined by

   respondent for each year:


                                                    1988                1989                  1990

Tax Return Reported Losses                     ($   1,650)         ($      2,651)        ($   94,292)

Respondent's Determinations:

 $7,003,000 Embezzlement Income As
 Alleged In State Court --

     Gabrielle Votano                             741,000
     Marion Family Trusts                                             4,087,000
     Ira Saferstein                                                     975,900*
     Judith Ripps                                                                         1,200,000

 $1,375,000 In Additional Income
 Adjustments --

     Check Kiting                                                                             350,000
     Bridgehampton Estates                                                                    575,000
     William Marion                                                                           450,000

     Total Adjustments To Income                $741,000             $5,062,900          $2,575,000


            *   As indicated, respondent's notice of deficiency made an adjustment of
                $975,900 with regard to petitioner's embezzlement from Saferstein.
                Respondent has not explained the $900 difference between the $975,000
                petitioner embezzled from Saferstein and the amount of the above
                adjustment, and we treat the additional $900 reflected in respondent's
                notice of deficiency as having been conceded by respondent.
                                             OPINION

   Collateral Estoppel And Petitioner's Embezzlement Income

         It is well established that gross income under section 61(a)

   includes income earned from illegal activity such as
                                - 15 -

embezzlement.    James v. United States, 366 U.S. 213, 219 (1961);

Collins v. Commissioner, 3 F.3d 625, 629-631 (2d Cir. 1993),

affg. T.C. Memo. 1992-478.

     It also is well established that, based on petitioner's

criminal conviction in New York State court, petitioner in this

case is estopped from denying that he embezzled funds from his

clients (namely, Votano, the Marion Family Trusts, Saferstein,

and Ripps).     Allen v. McCurry, 449 U.S. 90, 94 (1980); Montana v.

United States, 440 U.S. 147, 153-164 (1979); Parklane Hosiery Co.

v. Shore, 439 U.S. 322, 331-333 (1979); Disabled Am. Veterans v.

Commissioner, 942 F.2d 309, 312-314 (6th Cir. 1991), revg. 94

T.C. 60 (1990); De Cavalcante v. Commissioner, 620 F.2d 23 (3d

Cir. 1980), affg. Barrasso v. Commissioner, T.C. Memo. 1978-432.

     With regard, however, to the specific amount of funds that

petitioner embezzled from his clients, the collateral estoppel

effect of petitioner's State court conviction for embezzlement

combined with the State court order of restitution is less clear.

Arguably, the restitution order would appear to establish the

specific amount of funds petitioner embezzled from each of the

clients (namely, $741,000 in 1988 from Votano, $4,087,000 in 1989

from the Marion Family Trusts, $975,000 in 1989 from Saferstein,

and $1,200,000 in 1990 from Ripps).      In Meier v. Commissioner, 91

T.C. 273, 286 (1988), which involved the collateral estoppel

effect of a prior action for accounting of misappropriated funds,

we held that both the fact of misappropriation and the specific
                               - 16 -

amount of funds misappropriated were established by collateral

estoppel.

     In petitioner's New York State court criminal prosecution,

however, neither the indictment nor the judgment of conviction

charged petitioner with embezzlement of any specific amount of

funds from his clients.   Further, the record in this case is

lacking in information regarding the manner in which the order of

restitution was adjudicated and issued.

     On the record in this case, we believe it would be

inappropriate to apply collateral estoppel to the New York State

Court order of restitution and to base our findings as to the

specific amount of embezzlement income petitioner received each

year from his clients solely on the order of restitution, and we

decline to do so.    Allen v. McCurry, supra at 95; Zecchini v.

Commissioner, T.C. Memo. 1992-8; Cipparone v. Commissioner, T.C.

Memo. 1985-234; Keogh v. Commissioner, T.C. Memo. 1975-197.

     However, for purposes of the tax deficiencies determined by

respondent in this case, petitioner has the burden of proving by

a preponderance of the evidence the actual amount of embezzlement

income that he received in each year.    Rule 142(a).   The evidence

indicates that petitioner embezzled from his clients essentially

the same amount of funds that he was ordered to restore to his

clients.    The restitution amounts have been stipulated by the

parties, and those stipulated amounts reflect essentially the

same amount of embezzlement income that respondent has charged to
                              - 17 -

petitioner with respect to Votano (namely, $741,000 for 1988),

with respect to the Marion Family Trusts (namely, $4,087,000 for

1989), with respect to Saferstein (namely, $975,000 for 19892),

and with respect to Ripps (namely, $1,200,000 for 1990).    The

evidence indicates (by, among other things, petitioner's own

acknowledgment in the letter to his clients) that petitioner took

control of these funds and that petitioner, without permission of

his clients, misappropriated these funds and failed to repay his

clients.   Petitioner has failed to satisfy his burden of proving

to the contrary.   On the facts of this case, we sustain

respondent's determination that the above funds should be charged

to petitioner as taxable embezzlement income for each of the

years indicated.

     Petitioner alleges constitutional defects in the State court

criminal trial leading up to his conviction, and petitioner

argues therefrom that, in spite of his conviction and the

restitution order, he should not be estopped in this proceeding

from disputing his receipt of embezzlement income.   We disagree.

Petitioner has not established such fundamental flaws in his

State court conviction that the doctrine of collateral estoppel

should not apply to establish that petitioner embezzled funds

from clients.   28 U.S.C. sec. 1738 (1988); Kremer v. Chemical

2
     As explained, with regard to Saferstein, the order of
restitution reflected $1 million and respondent's notice of
deficiency reflected $975,900. The amount stipulated by the
parties and that we use is $975,000.
                              - 18 -

Constr. Corp., 456 U.S. 461, 481-485 (1982); Bertoli v.

Commissioner, 103 T.C. 501, 507-508 (1994).

     Alternatively, with respect to the embezzlement income that

is covered by the State court order of restitution and by

petitioner's obligation to reimburse the New York State Lawyers’

Fund for Client Protection, petitioner argues that such

embezzlement income should not be taxable to him but that it

should be treated as having been converted into a nontaxable debt

obligation.   While it is true that restitution of embezzled funds

may give rise to an ordinary deduction for the embezzler in the

year of repayment, James v. United States, supra at 220, such

possible deduction in the year of repayment does not affect the

requirement that the embezzled funds be included in income in the

year of receipt.   In any event, petitioner has not repaid any of

the embezzled funds.

     With respect to the $350,000 that petitioner obtained

through his check-kiting scheme and the $575,000 that petitioner

obtained by forging Goldman's signature on checks written on the

New Gold account, petitioner claims that his acknowledgment of

his obligation to repay these funds requires that all of these

funds now be treated in his hands as nontaxable loan proceeds.

As explained, however, by the Court of Appeals for the Second

Circuit in Collins v. Commissioner, 3 F.3d at 631:


     Loans are identified by the mutual understanding between the
     borrower and lender of the obligation to repay and a bona
                              - 19 -

     fide intent on the borrower's part to repay the acquired
     funds.

     The evidence does not establish that petitioner's receipt of

$350,000 through his check-kiting scheme was based on consensual

agreements between petitioner and the banks to the effect that

petitioner could overdraw his accounts and later repay the banks,

as petitioner contends.

     Similarly, the evidence does not establish that petitioner's

receipt of $575,000 by forging Goldman's signature was based on a

consensual agreement between petitioner and Goldman to the effect

that petitioner could forge Goldman's signature and treat the

funds so obtained as a personal loan.

     The sparse evidence in the record, however, with regard to

petitioner's receipt of $450,000 from William Marion indicates

(and respondent's brief so acknowledges) that these funds were

obtained by New Gold and Ryer as a loan from William Marion.    The

facts that petitioner personally guaranteed the loan and the loan

has not been repaid do not convert this $450,000 into taxable

income to petitioner.   The $450,000 that was borrowed from

William Marion is not to be treated as taxable income to

petitioner in the years before us.

     In summary, each of respondent's adjustments to petitioner's

1988, 1989, and 1990 taxable income is sustained with the

exception of the $450,000 loan proceeds from William Marion.
                                  - 20 -

Fraud Addition To Tax For 1988 And Fraud Penalties For 1989 And 1990

     Whether a taxpayer is liable for a fraud addition to tax or

a fraud penalty constitutes a question of fact.

     Fraud is never to be imputed or presumed.    However, "its

proof may depend to some extent upon circumstantial evidence, and

may rest upon reasonable inferences properly drawn from the

evidence of record."     Stone v. Commissioner, 56 T.C. 213, 224

(1971); see also Rowlee v. Commissioner, 80 T.C. 1111 (1983);

Stephenson v. Commissioner, 79 T.C. 995 (1982), affd. 748 F.2d

331 (6th Cir. 1984).

     The consistent understatement of substantial amounts of

income over several years is strong evidence of fraud.     Merritt

v. Commissioner, 301 F.2d 484, 487 (5th Cir. 1962), affg. T.C.

Memo. 1959-172; Vannaman v. Commissioner, 54 T.C. 1011, 1018

(1970).   Any conduct, the likely effect of which would be to

mislead or conceal, is indicative of fraud.    Fraud must be proved

by respondent by clear and convincing evidence.    Sec. 7454; Rule

142(b).

     Where fraud is established for a year, the 75-percent fraud

addition to tax for 1988 under section 6653(b)(1) and (2) and the

75-percent fraud penalty for 1989 and 1990 under section 6663(a)

and (b) apply to the entire tax deficiency unless the taxpayer

establishes that some portion of the underpayment is not

attributable to fraud.
                              - 21 -

     Strong evidence of petitioner's fraudulent intent for each

year in issue exists in this case.     Petitioner was an experienced

attorney.   Petitioner certainly knew of his professional

obligation to maintain client funds and investments separate from

his own funds and investments.    With the exception of the

$450,000 obtained by petitioner as a loan from William Marion,

petitioner received substantial income by embezzling funds from

his clients, by kiting checks, and by forging signatures, none of

which petitioner reported on his Federal income tax returns.

     Petitioner failed to file Federal income tax returns for

many years, and petitioner's Federal income tax returns for 1988

and 1989 were untimely filed only after petitioner was contacted

by respondent's representative about the delinquent returns.

     Petitioner's Federal income tax returns for 1988, 1989, and

1990 that were eventually filed were inaccurate and failed to

report significant income that petitioner received in each year.

     Petitioner's pattern of not reporting taxable income, along

with the other factors mentioned, establish by clear and

convincing evidence petitioner's fraud with regard to his Federal

income taxes for 1988, 1989, and 1990.     Holland v. United States,

348 U.S. 121, 137 (1954); Bradford v. Commissioner, 796 F.2d 303

(9th Cir. 1986), affg. T.C. Memo. 1984-601.

     Further, petitioner has not satisfied his burden of proving

herein that any of the income adjustments that we have sustained

were not attributable to fraud.    Accordingly, the 75-percent
                              - 22 -

fraud addition to tax for 1988 and the 75-percent fraud penalties

for 1989 and 1990 are sustained and are applicable to each of the

income adjustments that we have sustained.

     Petitioner argues that the imposition against him in this

case of a fraud addition to tax for 1988 and of fraud penalties

for 1989 and 1990 would constitute double jeopardy and cruel and

unusual punishment in violation of the 5th and 8th amendments to

the U.S. Constitution.   Petitioner's argument is without merit.

See United States v. Alt, 83 F.3d 779 (6th Cir. 1996); Ianniello

v. Commissioner, 98 T.C. 165, 176-187 (1992).


Other Additions To Tax

     Also at issue are additions to tax under section 6661(a) for

1988 and under section 6651(a)(1) for 1989.   Petitioner has not

established under section 6661(a) that the underpayment for 1988,

as reflected on the Federal income tax return that was filed for

1988, was based on substantial authority.    For 1989, petitioner

has not established under section 6651(a)(1) that the late filing

of his return for that year was due to reasonable cause.

     We sustain the imposition of each of these additions to tax.


                                    Decision will be entered

                               under Rule 155.
