                   T.C. Memo. 2003-333




                 UNITED STATES TAX COURT



             JOHN R. TONEY, Petitioner v.
     COMMISSIONER OF INTERNAL REVENUE, Respondent



Docket No. 10683-01.        Filed December 4, 2003.

     P reported taxable income of “zero” on his 1986
tax return, claiming he was not liable for tax due as
no section of the Internal Revenue Code imposed a tax
upon him. P was charged with, and subsequently pleaded
guilty to, one count of criminal tax evasion for 1986
in violation of 26 U.S.C. sec. 7201 (2000).

     R determined a deficiency of $14,611, additions to
tax for fraud pursuant to sec. 6653(b), I.R.C., and an
addition to tax for substantial understatement pursuant
to sec. 6661, I.R.C. On Feb. 10, 2003, R moved for
summary judgment.

     Held:   R’s motion for summary judgment is granted
in full.

     Held, further, P is liable for a deficiency in the
amount of $14,611 for 1986 based on his deemed
admission.

     Held, further, P is liable for the additions to
tax for fraud pursuant to sec. 6653(b), I.R.C. Based
                               - 2 -

     on the doctrine of collateral estoppel, R has shown
     that there is an underpayment in P’s income tax for
     1986 and part of the underpayment is due to fraud
     within the meaning of sec. 6653(b), I.R.C. P has
     failed to set forth specific facts in the pleadings, in
     his objection to R’s motion for summary judgment, or at
     the hearing, showing there is a genuine dispute as to
     the portion of the underpayment not attributable to
     fraud. See Celotex Corp. v. Catrett, 477 U.S. 317, 322
     (1986); Matsushita Elec. Indus. Co. v. Zenith Radio
     Corp., 475 U.S. 574, 587 (1986). Accordingly, the
     entire underpayment is attributable to fraud as a
     matter of law.

          Held, further, P is liable for the addition to tax
     pursuant to sec. 6661, I.R.C.


     John R. Toney, pro se.

     Robert S. Scarbrough, for respondent.



                        MEMORANDUM OPINION


     VASQUEZ, Judge:   This case is before the Court on

respondent’s motion for summary judgment.    The issues for

decision are:   (1) Whether petitioner is liable for a deficiency

of $14,6111 in his 1986 Federal income taxes; (2) whether

petitioner is liable for additions to tax under section

6653(b)(1);2 and (3) whether petitioner is liable for the

addition to tax under section 6661.


     1
         All amounts are rounded to the nearest dollar.
     2
        Unless otherwise indicated, all Rule references are to
the Tax Court Rules of Practice and Procedure, and all section
references are to the Internal Revenue Code for the year in
issue.
                                - 3 -

Background

     At the time he filed the petition, petitioner resided in

Castle Rock, Washington.   Petitioner graduated in 1975 from

Palmer College of Chiropractic in Davenport, Iowa.   Petitioner

formed Toney Chiropractic Center, a sole proprietorship, in 1977

and worked there during the relevant time period.

     Petitioner reported taxable income of “zero” on his

individual income tax return for 1986.   Petitioner attached to

his Form 1040A, U.S. Individual Income Tax Return, a “summary of

income items”.   He estimated that his wages were $20,000, and

noted “due to lost or stolen records, and unavailability of

information this figure is an estimated amount”.    Petitioner also

attached to his Form 1040A a note in which he claimed he was not

liable for tax due, as no section of the Internal Revenue Code

imposed a tax upon him.    Petitioner submitted tax returns for the

taxable years 1979 through 1985 and 1987 through 1991 containing

similar frivolous arguments and claiming zero tax liability.

     By Information dated February 23, 1996, the U.S. Attorney

for the Western District of Washington (U.S. Attorney) charged

petitioner with criminal tax evasion under section 7201 for the

taxable year 1986.

     On March 13, 1996, petitioner entered into a plea agreement

with the U.S. Attorney.    Petitioner pleaded guilty to one count
                              - 4 -

of tax evasion in violation of section 7201.   Petitioner

admitted:

     On or about November 2, 1990, within the Western
     District of Washington, [he] * * * submitted to the
     Internal Revenue Service, a 1986 U.S. Individual Income
     Tax Return, for which he claimed he was not a taxpayer
     within the meaning of federal tax laws and therefore
     not subject to payment of taxes, as required by law.
     [Petitioner]’s tax due and owing for the calendar year
     1986 was $14,611, which he did not pay. As evidenced
     by cashing out income checks, not using business bank
     accounts, paying expenses with cash or money orders,
     attempting to place assets in the name of the Basic
     Bible Church, and destroying business records,
     [petitioner] acknowledges that he attempted to evade
     federal taxes due and owing for the tax year 1986, the
     likely effect of which was to mislead or conceal.

     On July 19, 1996, the U.S. District Court for the Western

District of Washington (U.S. District Court) accepted

petitioner’s plea and entered judgment against petitioner.   The

U.S. District Court directed petitioner to pay restitution to

respondent in the amount of $14,611.   The U.S. District Court

held a hearing for petitioner, pursuant to rule 11 of the Federal

Rules of Criminal Procedure, before it accepted petitioner’s

plea.

     Petitioner did not appeal the judgment of the U.S. District

Court.

     On May 24, 2001, respondent issued a notice of deficiency.

Respondent determined a deficiency of $14,611, and additions to

tax of $10,958 pursuant to section 6653(b)(1)(A), 50 percent of
                                - 5 -

interest on $14,611 pursuant to section 6653(b)(1)(B), and $3,653

pursuant to section 6661.

     Petitioner timely filed a petition with the Court.

Petitioner disagrees with the following adjustments in the notice

of deficiency: (1) Calculation of $14,611 as the amount of the

deficiency; (2) additions to tax for fraud pursuant to section

6653(b); and (3) addition to tax for substantial understatement

pursuant to section 6661.

     On February 10, 2003, respondent moved for summary judgment.

On March 10, 2003, petitioner filed a response opposing summary

judgment.    On March 24, 2003, we heard oral argument on the

motion.

Discussion

     Summary judgment under Rule 121 is derived from rule 56 of

the Federal Rules of Civil Procedure.      In any question turning on

the interpretation of Rule 121, the history of rule 56, Federal

Rules of Civil Procedure, and the authorities interpreting such

rule are considered by the Court.    See Hoeme v. Commissioner, 63

T.C. 18, 21 (1974).

     Rule 121(a) provides that either party may move for summary

judgment upon all or any part of the legal issues in controversy.

Summary judgment is intended to expedite litigation and avoid

unnecessary and expensive trials.       Fla. Peach Corp. v.

Commissioner, 90 T.C. 678, 681 (1988).      Summary judgment is
                                - 6 -

appropriate “if the pleadings, answers to interrogatories,

depositions, admissions, and any other acceptable materials,

together with the affidavits, if any, show that there is no

genuine issue as to any material fact and that a decision may be

rendered as a matter of law.”    Rule 121(b); see Celotex Corp. v.

Catrett, 477 U.S. 317, 322 (1986); Sundstrand Corp. v.

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

Cir. 1994); Zaentz v. Commissioner, 90 T.C. 753, 754 (1988);

Naftel v. Commissioner, 85 T.C. 527, 529 (1985).

     The moving party bears the burden of proving that there is

no genuine issue of material fact, and factual inferences will be

read in a manner most favorable to the party opposing summary

judgment.   Celotex Corp. v. Catrett, supra at 322; Dahlstrom v.

Commissioner, 85 T.C. 812, 821 (1985); Jacklin v. Commissioner,

79 T.C. 340, 344 (1982).    The inferences to be drawn from the

facts are to be viewed in the light most favorable to the non-

moving party.   Matsushita Elec. Indus. Co. v. Zenith Radio Corp.,

475 U.S. 574, 588 (1986).   When the moving party has carried its

burden, however, the party opposing the summary judgment motion

must do more than simply show that “there is some metaphysical

doubt as to the material facts.”    Id. at 586.   The party opposing

the motion “may not rest upon the mere allegations or denials of

his pleadings, but * * * must set forth specific facts showing

there is a genuine issue for trial.”    Anderson v. Liberty Lobby,
                                 - 7 -

Inc., 477 U.S. 242, 248 (1986).    Where the record viewed as a

whole could not lead a reasonable trier of fact to find for the

non-moving party, there is no “genuine issue for trial”.

Matsushita Elec. Indus. Co. v. Zenith Radio Corp., supra at 587.

     Summary judgment is appropriate where the facts deemed

admitted pursuant to Rule 90(c) support a finding that there is

no genuine issue as to any material fact.     Marshall v.

Commissioner, 85 T.C. 267, 271-272 (1985).

Issue 1.   Liability for Deficiency

     Respondent seeks judgment as a matter of law regarding

petitioner’s deficiency for 1986.     Petitioner argues that he is

not liable for a deficiency of $14,611.

     On December 24, 2002, respondent filed respondent’s requests

for admission.   Petitioner did not respond to the requests for

admission.   Each matter of which respondent requested admission

is deemed admitted.   Rule 90(c); see also Marshall v.

Commissioner, supra at 271-272.

     Pursuant to respondent’s requests for admission, petitioner

is deemed to have admitted that “his tax due and owing for the

calendar year 1986 was $14,611, which he did not pay”.      We also

note that petitioner voluntarily signed a plea agreement in his

criminal case in which he admitted to owing a tax liability for

1986 in the amount of $14,611.

     Based on the deemed admission, we find petitioner is liable
                                 - 8 -

for a deficiency in the amount of $14,611 for 1986.

Issue 2.   Additions to Tax Under Section 6653(b)(1)

     Respondent seeks judgment against petitioner for additions

to tax for fraud.   Respondent calculated the fraud additions on

$14,611, the full amount of the underpayment.

     Section 6653(b) provides:

          (1) In general.--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 the sum of–

                (A) 75 percent of the portion of the
           underpayment which is attributable to fraud,
           and

                (B) an amount equal to 50 percent of the
           interest payable under section 6601 with
           respect to such portion * * *.

          (2) Determination of portion attributable to
     fraud.--If the Secretary establishes that any portion
     of an underpayment is attributable to fraud, the entire
     underpayment shall be treated as attributable to fraud,
     except with respect to any portion of the underpayment
     which the taxpayer established is not attributable to
     fraud.

     In order to carry the burden of proof on the issue of fraud,

respondent must show that (1) an underpayment of tax exists and

(2) some portion of the underpayment is due to fraud.      Petzoldt

v. Commissioner, 92 T.C. 661, 699 (1989).   Respondent argues that

collateral estoppel applies to meet his burden.   In support,

respondent submitted petitioner’s Form 1040A, the notice of

deficiency, the judgment of the U.S. District Court, the

Information, and the plea agreement signed by petitioner.
                               - 9 -

     Petitioner opposes collateral estoppel.   Petitioner also

argues that he did not have a fair opportunity to contest the

$14,611 figure at trial in the criminal proceeding and that he

received ineffective assistance of counsel in the criminal

proceeding.

     Collateral estoppel precludes relitigation of any issue of

fact or law that was actually litigated and necessarily

determined by a valid and final judgment.   Montana v. United

States, 440 U.S. 147, 153 (1979).   Collateral estoppel applies

when “(1) there was a full and fair opportunity to litigate the

issue in the previous action; (2) the issue was actually

litigated in that action; (3) the issue was lost as a result of a

final judgment in that action; and (4) the person against whom

collateral estoppel is asserted in the present action was a party

or in privity with a party in the previous action”.   In re

Palmer, 207 F.3d 566, 568 (9th Cir. 2000) (quoting Pena v.

Gardner, 976 F.2d 469, 472 (9th Cir. 1992); Parklane Hosiery Co.

v. Shore, 439 U.S. 322, 329 (1979)).

     We are satisfied that the issue in the present case

regarding fraudulent intent is the same as the issue that was

presented and determined adversely against petitioner in the

criminal case.   The underlying issue in this case is that of

fraud.   Petitioner’s prior conviction was based on fraud; i.e.,

the charge of his knowingly and willfully attempting to evade
                               - 10 -

Federal income tax by filing a false and fraudulent Federal

income tax return in violation of section 7201.

     Petitioner had a full and fair opportunity to litigate the

fraud issue in U.S. District Court.     It is well established that

the elements of criminal tax evasion under section 7201 are

similar to the elements of civil tax fraud under section 6653(b).

Gray v. Commissioner, 708 F.2d 243, 246 (6th Cir. 1983), affg.

T.C. Memo. 1981-1.

     This issue was actually litigated to conclusion by

petitioner’s plea of guilty.   See McCarthy v. United States, 394

U.S. 459, 466 (1969) (a guilty plea constitutes an admission of

all the elements of the criminal charge); Gray v. Commissioner,

supra at 246 (a “guilty plea is as much a conviction as a

conviction following jury trial”); Arctic Ice Cream Co. v.

Commissioner, 43 T.C. 68, 75 (1964) (“a plea of guilty * * * is a

conclusive judicial admission of all of the essential elements of

the offense which the indictment charges”).    It is immaterial

that a conviction is based upon a guilty plea, rather than a

trial on the merits.   Arctic Ice Cream Co. v. Commissioner,

supra.

     The U.S. District Court, a court of competent jurisdiction,

rendered a final judgment that is no longer subject to appeal. In

addition, it is clear that the parties to the two proceedings are

the same.   Petitioner in the present case was the defendant in
                                - 11 -

the criminal case.   It is well established that respondent is a

party in privity with the United States.     See Amos v.

Commissioner, 43 T.C. 50, 52 (1964) (privity exists between the

United States and the Commissioner of Internal Revenue), affd.

360 F.2d 358 (4th Cir. 1965).

     We are unpersuaded by petitioner’s arguments concerning

waiver of his constitutional rights.     “A defendant who enters

such a plea simultaneously waives several constitutional rights,

including * * * his right to trial by jury, and his right to

confront his accusers.”   McCarthy v. United States, supra at 466.

Petitioner is an educated individual.     Petitioner voluntarily

signed the plea agreement.   The plea agreement clearly states the

rights petitioner forfeited in return for a more lenient

sentence.   Petitioner was further advised of his rights by the

U.S. District Court at the rule 11 hearing.

     We are also unpersuaded by petitioner’s arguments concerning

ineffective assistance of counsel and inability to question the

Government’s evidence and calculations at trial in the criminal

case.   Petitioner failed to appeal his conviction.    Petitioner

should have raised these objections on direct appeal of the

criminal case, if he so desired.    Lilley v. Commissioner, T.C.

Memo. 1989-602, affd. without published opinion 925 F.2d 417 (3d

Cir. 1991).   Petitioner’s allegations are not of the character to

warrant an exception to collateral estoppel.     See Klein v.
                                - 12 -

Commissioner, 880 F.2d 260 (10th Cir. 1989), affg. T.C. Memo.

1984-392; Wapnick v. Commissioner, T.C. Memo. 1997-133.

     Consistent with the foregoing, petitioner’s criminal

conviction under section 7201 with respect to his 1986 taxable

year collaterally estops him from denying in the present civil

tax proceeding:   (1) There is an underpayment in his income tax

for 1986, and (2) part of the underpayment is due to fraud within

the meaning of section 6653(b).     Tomlinson v. Lefkowitz, 334 F.2d

262, 266 (5th Cir. 1964); C.B.C. Super Mkts., Inc. v.

Commissioner, 54 T.C. 882, 893 (1970).

     Section 6653(b)(2) provides:    “If the Secretary establishes

that any portion of an underpayment is attributable to fraud, the

entire underpayment shall be treated as attributable to fraud,

except with respect to any portion of the underpayment which the

taxpayer establishes is not attributable to fraud.”    As

previously discussed, respondent has established through the

doctrine of collateral estoppel that a portion of the

underpayment is due to fraud.    As a matter of law, this finding

establishes that the entire portion of the underpayment is

attributable to fraud and shifts to petitioner the burden to

establish that a portion of the underpayment is not attributable

to fraud.   Under the standards for summary judgment, the burden

shifts to petitioner to “come forward with ‘specific facts

showing there is a genuine issue for trial.’” Matsushita Elec.
                              - 13 -

Indus. Co. v. Zenith Radio Corp., 475 U.S. at 587 (quoting Fed.

R. Civ. P. 56(e)).   “There is no issue for trial unless there is

sufficient evidence favoring the nonmoving party for a

[factfinder] to return a verdict for that party.”    Anderson v.

Liberty Lobby, Inc., 477 U.S. at 248.

     Whether a portion of the underpayment is not attributable to

fraud is a genuine issue of material fact in fraud cases.    When

respondent has established that a portion of the underpayment is

attributable to fraud, petitioner must set forth specific facts

showing there is a genuine dispute as to the portion of the

underpayment not attributable to fraud.    Otherwise, by operation

of law pursuant to section 6653(b), the entire underpayment is

attributed to fraud.

     Petitioner has failed to sustain his burden.    Petitioner has

presented no specific facts indicating that a portion of the

underpayment is not attributable to fraud.    Petitioner presented

no documents or testimony concerning nonfraudulent actions taken

as to any portion of the underpayment.    Petitioner offered no

testimony under oath at the oral argument or affidavit concerning

the portion of the underpayment not attributable to fraud.    The

exhibits attached to petitioner's Response Opposing Motion for

Summary Judgment likewise fail to raise an issue of fact as to

the portion of the underpayment which is not attributable to

fraud.
                               - 14 -

     Accordingly, respondent's showing that a portion of the

underpayment is attributable to fraud based on the application of

the doctrine of collateral estoppel leads to the conclusion that

the entire underpayment is attributable to fraud pursuant to

section 6653(b) as a matter of law, in light of petitioner’s

failure to raise a triable issue of fact whether a portion of the

underpayment is not attributable to fraud.

Issue 3.   Substantial Understatement of Tax

     The final issue for decision is whether petitioner is liable

for the addition to tax under section 6661.    For assessments made

after October 21, 1986, section 6661(a) provides for an addition

to tax equal to 25 percent of the amount of any underpayment

attributable to a substantial understatement of tax.    See Omnibus

Budget Reconciliation Act of 1986, Pub. L. 99-509, sec. 8002(a),

100 Stat. 1951.   An understatement is substantial if it exceeds

the greater of $5,000 or 10 percent of the tax required to be

shown on the return.   See sec. 6661(b).   The amount of the

understatement may be reduced under section 6661(b)(2)(B) for

amounts adequately disclosed or supported by substantial

authority.

     Petitioner reported income tax liability in the amount of

“zero”.    We have found petitioner liable for taxes in the amount

of $14,611 for 1986.   Petitioner understated his income taxes by

$14,611.   See sec. 6661(b)(2).   The understatement exceeds both
                             - 15 -

10 percent of the tax required to be shown on the return for the

taxable year in issue and $5,000.   See sec. 6661(b)(1)(A).

Accordingly, petitioner’s understatement is substantial.   Neither

exception under section 6661(b)(2)(B) applies because no amounts

were adequately disclosed or supported by substantial authority.

     We have considered all arguments made by the parties, and to

the extent not mentioned above, we find them to be irrelevant or

without merit.

     To reflect the foregoing,

                                         An appropriate order and

                                    decision will be entered.3




     3
        It is undisputed that petitioner has paid to respondent
$2,925 in restitution pursuant to the order of the U.S. District
Court. We expect petitioner to be given credit for his $2,925
restitution payment for taxable year 1986. Cf. M.J. Wood
Associates, Inc. v. Commissioner, T.C. Memo. 1998-375.
