                         T.C. Memo. 2003-156



                       UNITED STATES TAX COURT



                   MICHAEL W. DUNCAN, Petitioner v.
             COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 10284-02.               Filed May 28, 2003.



     Michael W. Duncan, pro se.

     Jason W. Anderson and Kathleen C. Schlenzig, for respondent.



                          MEMORANDUM OPINION


     CHIECHI, Judge:    This case is before the Court on respon-

dent’s motion for summary judgment (respondent’s motion).

Petitioner filed a response to respondent’s motion (petitioner’s

response).    We shall grant respondent’s motion.
                                - 2 -

                             Background

     Pursuant to the Court’s Order issued under Rule 37(c)1 on

January 23, 2003, all of the affirmative allegations in paragraph

6 of the answer, and consequently all of the facts on which

respondent relies in respondent’s motion, are deemed admitted.

     Petitioner had a mailing address in Glenview, Illinois, at

the time he filed the petition in this case.

     During 1990 and 1991, petitioner operated and was the

president, corporate secretary, and sole shareholder of Duncan &

Associates, Inc. (Duncan & Associates), a subchapter C corpora-

tion.    During those years, Duncan & Associates engaged in the

insurance brokerage business.

     As of December 31, 1989, petitioner had an outstanding loan

balance of $86,562 with respect to amounts that Duncan & Associ-

ates had lent petitioner for which that company did not charge

petitioner any interest.    (We shall refer to the interest that

Duncan & Associates did not charge petitioner on his outstanding

loan from that company as forgone interest.)    During 1990 and

1991, petitioner did not pay Duncan & Associates any interest on

petitioner’s outstanding loan balance with that company.

     During 1990, when petitioner was approximately 42 years old,

he withdrew $10,000 from Duncan & Associates’ Money Purchase


     1
      All Rule references are to the Tax Court Rules of Practice
and Procedure. All section references are to the Internal
Revenue Code (Code) in effect for the years at issue.
                                 - 3 -

Pension Plan & Trust and $17,000 from Duncan & Associates’ Profit

Sharing Plan & Trust.     (We shall refer collectively to those

withdrawals as petitioner’s 1990 retirement plan withdrawals.)

At all relevant times, petitioner knew that petitioner’s 1990

retirement plan withdrawals constitute income to him for 1990.

     On or about April 13 and July 18, 1991, Duncan & Associates

received checks totaling $49,500, which petitioner retained

and/or deposited in his bank account.      At all relevant times,

petitioner knew that $40,000 of the total $49,500 in such checks

constitutes income to him for 1991.      (We shall refer to such

$40,000 of such checks as petitioner’s 1991 check amount.)

     During 1990 and 1991, respectively, after taking into

account Mr. Duncan’s payments or other transfers to or on behalf

of Duncan & Associates of amounts totaling $100,900 and

$128,779.98, Duncan & Associates made payments or transfers to or

for the benefit of petitioner of amounts totaling at least

$187,8132 and $331,484.    (We shall refer to those respective

amounts paid or used for petitioner’s behalf during 1990 and 1991

as petitioner’s 1990 and 1991 personal-benefit amounts.)      At all

relevant times, petitioner knew that petitioner’s 1990 and 1991



     2
      The amounts deemed established under Rule 37(c) with re-
spect to the amounts that Duncan & Associates paid to or expended
for the benefit of petitioner during 1990 exceed the amounts for
such purposes determined in the notice of deficiency for that
year. Respondent does not claim an increased deficiency for 1990
with respect to that excess. We accept respondent’s position.
                               - 4 -

personal-benefit amounts constitute income to him for 1990 and

1991, respectively.

     At a time not disclosed by the record before September 1992,

respondent commenced examinations of petitioner and of Duncan &

Associates with respect to their respective taxable years 1990

and 1991.

     On October 8, 1992, petitioner filed Federal income tax

(tax) returns for his taxable years 1990 (1990 return) and 1991

(1991 return) after the respective due dates for such returns had

passed.   Petitioner did not file returns for his taxable years

1990 and 1991 until after respondent commenced an examination of

those returns because he did not want to pay the respective tax

due for such years.   When petitioner filed his 1990 return and

1991 return on October 8, 1992, petitioner knew and understood

that each such return understated his income for each such year.

To illustrate, in his 1990 return and/or his 1991 return, peti-

tioner did not report as income the following:   (1) The forgone

interest on petitioner’s outstanding loan balance with Duncan &

Associates for 1990 and 1991; (2) petitioner’s 1990 retirement

plan withdrawals; and (3) petitioner’s 1990 and 1991 personal-

benefit amounts, including petitioner’s 1991 check amount.

Moreover, in his 1990 return, petitioner did not report the 10-

percent additional tax imposed by section 72(t) on petitioner’s

1990 retirement plan withdrawals.   In addition, although peti-
                                 - 5 -

tioner was married at the end of his taxable years 1990 and 1991,

petitioner claimed a filing status of single in his respective

returns for those years.

     During respondent’s examinations of petitioner and of Duncan

& Associates with respect to their respective taxable years 1990

and 1991, petitioner fraudulently and corruptly obstructed and

impeded, and endeavored to obstruct and impede, the due adminis-

tration of the Code by knowingly creating and causing the cre-

ation of false and fraudulent documents for the purpose of

obstructing and impeding respondent’s examinations of petitioner

and of Duncan & Associates with respect to their respective

taxable years 1990 and 1991 and for the purpose of concealing

from respondent the falsity of petitioner’s return for each of

his taxable years 1990 and 1991 and of Duncan & Associates’

return for each such year.

     On March 31, 1998, petitioner entered into a plea agreement

with the United States Attorney for the Northern District of

Illinois, in which petitioner pleaded guilty to one count of

obstructing and impeding the due administration of the Code in

violation of section 7212(a).3


     3
      Sec. 7212(a) provides:

     SEC. 7212.   ATTEMPTS TO INTERFERE WITH
                  ADMINISTRATION OF INTERNAL REVENUE LAWS.

          (a) Corrupt or Forcible Interference.–-Whoever
                                                   (continued...)
                                - 6 -

     On March 20, 2002, respondent issued to petitioner a notice

of deficiency (notice) with respect to his taxable years 1990 and

1991.    In that notice, respondent determined deficiencies in,

additions under section 6651(a)(1) to, and fraud penalties under

section 6663(a) on petitioner’s tax, as follows:

                           Addition to Tax         Fraud Penalty
  Year     Deficiency   Under Sec. 6651(a)(1)   Under Sec. 6663(a)
  1990       $69,655          $17,642.85             $52,241.25
  1991       109,700           10,973.21              82,275.00

     Respondent further determined in the notice that petitioner

has imputed dividend income for 1990 and 1991 under section 7872

of $7,089 and $7,670, respectively, as a result of the forgone

interest on petitioner’s outstanding loan balances with Duncan &

Associates during those respective years.

     Respondent also determined in the notice that petitioner has



     3
      (...continued)
     corruptly or by force or threats of force (including
     any threatening letter or communication) endeavors to
     intimidate or impede any officer or employee of the
     United States acting in an official capacity under this
     title, or in any other way corruptly or by force or
     threats of force (including any threatening letter or
     communication) obstructs or impedes, or endeavors to
     obstruct or impede, the due administration of this
     title, shall upon conviction thereof, be fined not more
     than $5,000, or imprisoned not more than 3 years, or
     both, except that if the offense is committed only by
     threats of force, the person convicted thereof shall be
     fined not more than $3,000, or imprisoned not more than
     1 year, or both. The term “threats of force”, as used
     in this subsection, means threats of bodily harm to the
     officer or employee of the United States or to a member
     of his family.
                                - 7 -

constructive dividend income for 1990 and 1991 of $187,8134 and

$331,484, respectively, as a result of petitioner’s 1990 and 1991

personal-benefit amounts during those respective years.

       Respondent further determined in the notice that petitioner

has income for 1990 of $27,000 as a result of petitioner’s 1990

retirement plan withdrawals.

       Respondent also determined in the notice that petitioner is

liable for the 10-percent additional tax under section 72(t) of

$2,700 as a result of petitioner’s 1990 retirement plan withdraw-

als.

       Respondent further determined in the notice that peti-

tioner’s filing status for each of his taxable years 1990 and

1991 was married filing separate.

                             Discussion

       The Court may grant summary judgment where there is no

genuine issue of material fact and a decision may be rendered as

a matter of law.    Rule 121(b); Sundstrand Corp. v. Commissioner,

98 T.C. 518, 520 (1992), affd. 17 F.3d 965 (7th Cir. 1994).

       All of the facts on which respondent relies in respondent’s

motion have been deemed admitted.    Those facts include the

material facts on which we may proceed to resolve the issues in

respondent’s motion, including the issue relating to the fraud

penalties under section 6663(a), see, e.g., Doncaster v. Commis-


       4
        See supra note 2.
                              - 8 -

sioner, 77 T.C. 334, 337 (1981).   We conclude that there are no

genuine issues of material fact regarding the issues raised in

respondent’s motion.

     With respect to respondent’s determinations that petitioner

has a deficiency in tax for each of the years at issue and that

he is liable for each of those years for an addition to tax under

section 6651(a)(1), on the record presented, we sustain those

determinations.5


     5
      In petitioner’s response, petitioner does not dispute
respondent’s determinations that he has deficiencies in tax for
the years at issue. In fact, petitioner admits in that response
that “There clearly are monies due and owing the IRS which the
petitioner admits to and wants to settle.”

     Petitioner’s response, however, does not address the balance
of the issues presented in respondent’s motion. To illustrate,
petitioner’s response states in part:

     The respondent has filed a motion for summary judgment
     based upon lack of response and stated allegations and
     to this end I (we) request that you consider mitigating
     circumstances, as follows:

          1.   Petitioner does not have funds to hire legal
               counsel needed to prepare briefs and re-
               sponses to motions.
          2.   Petitioner [sic] records were destroyed in a
               flood [sic] August 22, 2002, at a warehouse
               facility in Glenview, Illinois.
          3.   Petitioner sustained a disabling injury re-
               sulting in two (2) surgeries to his left foot
               with continuing care through Mayo Clinic
               Rochester, Minnesota.
          4.   Petitioner requests the court to consider the
               six (6) year delay during which the IRS did
               not assess outstanding taxes.
          5.   In excess of 80% of amounts due and owing IRS
               are accrued interest and penalties resulting
                                                   (continued...)
                                 - 9 -

     With respect to the fraud penalty under section 6663(a) that

respondent determined against petitioner for each of his taxable

years 1990 and 1991, section 6663(a) imposes a penalty equal to

75 percent of the portion of any underpayment that is attribut-

able to fraud.   For purposes of section 6663(a), if the Commis-

sioner of Internal Revenue (Commissioner) establishes that any

portion of an underpayment is attributable to fraud, the entire

underpayment is to be treated as attributable to fraud, except

with respect to any portion of the underpayment that the taxpayer

establishes by a preponderance of the evidence is not attribut-

able to fraud.   Sec. 6663(b).   In order for the fraud penalty to

apply, the Commissioner must prove by clear and convincing

evidence, sec. 7454(a); Rule 142(b), that an underpayment exists

and that some portion of such underpayment is attributable to

fraud.   Niedringhaus v. Commissioner, 99 T.C. 202, 210 (1992).

     To prove the existence of an underpayment, the Commissioner


     5
      (...continued)
               from the IRS admitting to losing/misplacing
               Mr. Duncan’s and Duncan & Associates’ files.
          6.   Petitioner and legal counsel Mr. Fred Fore-
               man, former U.S. attorney [sic] for the 7th
               District, requested on numerous occasions
               amounts due and owing the IRS for tax years
               1990 and 1991 only to be told that cases
               involving fraud or allegations of fraud could
               not be paid until concluded.

We note that   the so-called mitigating circumstances quoted above
in paragraph   2 of petitioner’s response is inconsistent with
petitioner’s   petition in which he alleges that his records for
the years at   issue “were discarded due to their age”.
                               - 10 -

may not rely on a taxpayer’s failure to carry his or her burden

of proof with respect to the underlying deficiency.    Parks v.

Commissioner, 94 T.C. 654, 660-661 (1990); Petzoldt v. Commis-

sioner, 92 T.C. 661, 700 (1989).   The Commissioner must prove

only that an underpayment exists, and not the precise amount of

such underpayment.   DiLeo v. Commissioner, 96 T.C. 858, 873

(1991), affd. 959 F.2d 16 (2d Cir. 1992); Petzoldt v. Commis-

sioner, supra at 699-700.

     Petitioner did not report as income in his 1990 return

and/or his 1991 return the following:   (1) The forgone interest

on petitioner’s outstanding loan balance with Duncan & Associates

for 1990 and 1991; (2) petitioner’s 1990 retirement plan with-

drawals; and (3) petitioner’s 1990 and 1991 personal-benefit

amounts, including petitioner’s 1991 check amount.    Nor did

petitioner report in his 1990 return the 10-percent additional

tax imposed by section 72(t) with respect to petitioner’s 1990

retirement plan withdrawals.   Moreover, in petitioner’s response,

petitioner admits that “There clearly are monies due and owing

the IRS which the petitioner admits to and wants to settle.”

     On the instant record, we find that respondent has estab-

lished by clear and convincing evidence that there was an under-

payment of petitioner’s tax for each of his taxable years 1990

and 1991.

     In order to prove fraudulent intent, the Commissioner must
                              - 11 -

prove by clear and convincing evidence that the taxpayer intended

to evade tax, which he or she believed to be owing, by conduct

intended to conceal, mislead, or otherwise prevent the collection

of such tax.   Laurins v. Commissioner, 889 F.2d 910, 913 (9th

Cir. 1989), affg. Norman v. Commissioner, T.C. Memo. 1987-265;

Parks v. Commissioner, supra at 661.     The existence of fraud is a

question of fact to be resolved upon consideration of the entire

record.   DiLeo v. Commissioner, supra at 874; Gajewski v. Commis-

sioner, 67 T.C. 181, 199 (1976), affd. without published opinion

578 F.2d 1383 (8th Cir. 1978).    Fraud is never presumed or

imputed and should not be found in circumstances which create at

most only suspicion.   Toussaint v. Commissioner, 743 F.2d 309,

312 (5th Cir. 1984), affg. T.C. Memo. 1984-25; Petzoldt v.

Commissioner, supra at 699-700.    Direct evidence of the requisite

fraudulent intent is seldom available.     Petzoldt v. Commissioner,

supra at 699; Rowlee v. Commissioner, 80 T.C. 1111, 1123 (1983).

Consequently, the Commissioner may prove fraud by circumstantial

evidence.   Toussaint v. Commissioner, supra at 312; Rowlee v.

Commissioner, supra at 1123; see Marsellus v. Commissioner, 544

F.2d 883, 885 (5th Cir. 1977), affg. T.C. Memo. 1975-368.

     The courts have identified a number of badges of fraud from

which fraudulent intent may be inferred, including (1) the

understatement of income, (2) the making of false and inconsis-

tent statements to revenue agents, and (3) the failure to cooper-

ate with tax authorities.   See Bradford v. Commissioner, 796 F.2d
                               - 12 -

303, 307-308 (9th Cir. 1986), affg. T.C. Memo. 1984-601; Parks v.

Commissioner, supra at 664-665.    Although no single factor is

necessarily sufficient to establish fraud, the existence of

several indicia constitutes persuasive circumstantial evidence of

fraud.   Petzoldt v. Commissioner, supra at 700; see Bradford v.

Commissioner, supra at 307.

     The record in this case contains indicia of fraud by

petitioner.   When petitioner filed his returns for 1990 and 1991,

he knew and understood that each such return understated his

income for each such year.    In addition, petitioner did not file

returns for his taxable years 1990 and 1991 until after respon-

dent commenced an examination of those returns because he did not

want to pay the respective tax due for such years.   Moreover,

during respondent’s examinations of petitioner and of Duncan &

Associates with respect to their respective taxable years 1990

and 1991, petitioner fraudulently and corruptly obstructed and

impeded, and endeavored to obstruct and impede, the due adminis-

tration of the Code by knowingly creating and causing the cre-

ation of false and fraudulent documents for the purpose of

obstructing and impeding respondent’s examinations of petitioner

and of Duncan & Associates with respect to their respective

taxable years 1990 and 1991 and for the purpose of concealing

from respondent the falsity of petitioner’s return for each of

his taxable years 1990 and 1991 and of Duncan & Associates’

return for each such year.    In addition, although petitioner was

married at the end of his taxable years 1990 and 1991, petitioner
                             - 13 -

claimed a filing status of single in his respective returns for

those years.

     Based upon our examination of the entire record before us,

we find that respondent has established by clear and convincing

evidence that petitioner intended to evade tax for his taxable

years 1990 and 1991, which he believed to be owing, by conduct

intended to conceal, mislead, or otherwise prevent the collection

of such tax.

     We have considered all of petitioner’s contentions, argu-

ments, and requests that are not discussed herein, and we find

them to be without merit and/or irrelevant.

     On the record before us, we shall grant respondent’s motion.

     To reflect the foregoing,

                                      An order granting respondent’s

                                 motion and decision will be entered

                                 for respondent.
