                        T.C. Memo. 1999-232



                      UNITED STATES TAX COURT



              STEPHEN MARTIN BEDDOW, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 22932-93.                       Filed July 13, 1999.



     Stephen Martin Beddow, pro se.

     Trevor T. Wetherington and Armand G. Begun, for respondent.



                        MEMORANDUM OPINION

     LARO, Judge:   Petitioner petitioned the Court on October 25,

1993, to redetermine respondent's determination of deficiencies

in petitioner's Federal income tax for 1986 and 1987.    By notice

of deficiency dated August 9, 1993, respondent determined

petitioner had unreported income generated from the sale of
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illegal drugs.     The resulting deficiencies in income tax and

additions to tax are as follows:

                                     Additions to Tax
Year         Deficiency     6653(b)(1)(A) 6653(b)(1)(B)       6654

1986         $5,511         $4,133                 *          $267
1987          4,198          3,149                 *           227

       *Fifty percent of the interest due on the deficiency.

       We decide the following issues:

       1.   Whether petitioner's case should be dismissed in part

for failure to prosecute properly.       We hold it should.

       2.   Whether petitioner is liable for the addition to tax for

fraud under section 6653(b)(1)(A) and (B) for 1986 and 1987.         We

hold he is.

       Unless otherwise stated, section references are to the

applicable versions of the Internal Revenue Code, and Rule

references are to the Tax Court Rules of Practice and Procedure.

                              Background

       Petitioner resided in Milan, Michigan, when he filed his

petition.1    Petitioner operated a restaurant during 1986 but shut

down operations by 1987.    During 1986 and 1987, petitioner

engaged in several illegal drug transactions involving the

purchase and sale of cocaine.    Petitioner conducted the illegal



       1
      Petitioner was incarcerated in a Federal correctional
institution when he filed his petition but was released at the
time this case was set for trial.
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transactions in cash and did not maintain books and records

memorializing the transactions.   Petitioner received $38,528 and

$34,976 in cash from cocaine sales during 1986 and 1987,

respectively, but he failed to file Federal income tax returns

for those years.

     Douglas Louzon (Louzon)2 was petitioner's longtime

acquaintance and confidante.   Louzon agreed to cooperate with

Federal law enforcement officers in their investigation of

petitioner's drug activities, including their investigation that

centered around petitioner's conduct in 1986 and 1987.    Louzon

wore a secret wire and engaged petitioner in several

conversations wherein petitioner openly discussed his drug sales,

boasted about his income from the sales and about extravagant

purchases, and expressed his dislike for the Internal Revenue

Service and taxes.   On October 10, 1990, petitioner was convicted

of the following offenses in the United States District Court for

the Western District of Michigan:   (1) Conspiracy to possess with

intent to distribute controlled substances; (2) monetary

transaction in property derived from illegal activity; (3)

laundering of monetary instruments; and (4) income tax evasion.

Among the issues of fact determined in the criminal case were


     2
      By 1987, Douglas Louzon had been convicted of several
felonies including malicious destruction of property, carrying a
concealed weapon, bank robbery, and possession of stolen
property.
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that petitioner willfully failed to file his 1987 Federal income

tax return and attempted to evade or defeat his 1987 income taxes

in violation of section 7201.

     Petitioner filed a 1984 Federal income tax return, and he

was aware of his obligation to file returns for 1986 and 1987.

Respondent determined petitioner had unreported income from drug

sales in 1986 and 1987 in the amounts of $38,528 and $34,976,

respectively.

     Petitioner's case was originally calendared for trial in

1995.   After we granted three continuances, the Court instructed

petitioner to appear for trial on March 15, 1999, in Detroit,

Michigan.   Petitioner failed to do so.   Petitioner also failed to

comply with the Court's order to file a trial memorandum and to

participate in the stipulation process.   Respondent moved under

Rule 123(b) to dismiss the case as to those issues on which

petitioner bore the burden of proof; to wit, the deficiencies and

additions to tax under section 6654. Respondent proceeded to

trial on the fraud issue.

                            Discussion

     We first decide whether petitioner's inaction in this case

warrants dismissal and entry of decision against him for all

issues upon which petitioner has the burden of proof.   We hold it

does.   Rule 123(b) provides:
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          Dismissal: For failure of a petitioner properly
     to prosecute or to comply with these Rules or any order
     of the Court or for other cause which the Court deems
     sufficient, the Court may dismiss a case at any time
     and enter a decision against the petitioner. The Court
     may, for similar reasons, decide against any party any
     issue as to which such party has the burden of proof,
     and such decision shall be treated as a dismissal for
     purposes of paragraphs (c) and (d) of this Rule.

Sanction by dismissal is exercised at the discretion of the trial

court.   See Levy v. Commissioner, 87 T.C. 794, 803 (1986).

Dismissal may properly be granted where the party’s failure to

comply is due to willfulness, bad faith, or fault.    See Dusha v.

Commissioner, 82 T.C. 592, 599 (1984).     A case may be dismissed

for failure properly to prosecute when petitioner fails to appear

at trial and does not otherwise proceed with the litigation of

his claim.   See Basic Bible Church v. Commissioner, 86 T.C. 110,

114 (1986); Ritchie v. Commissioner, 72 T.C. 126, 128-129 (1979);

Ulery v. Commissioner, T.C. Memo. 1990-409.

     Petitioner ignored most of respondent's communications and

failed to meet with respondent.   Petitioner disobeyed the letter

and spirit of the standing pretrial order and the Court's Rules,

failing to either participate in the stipulation process or file

a trial memorandum.   The only contact petitioner had with

respondent was a phone call wherein he stated he was unsure

whether he would proceed to trial.     Petitioner never submitted to

respondent any documentation in support of his position in this

case and took no meaningful steps towards resolving this case.
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     We find petitioner has failed properly to prosecute his

case.   He did not appear for his trial, he has disobeyed this

Court's order, and he has failed to cooperate with respondent.

We find that these failures were due to petitioner’s willfulness,

bad faith, or fault.   We shall grant respondent’s motion and

dismiss in part this case for failure properly to prosecute.

     This leaves the issue of whether petitioner is liable for

the additions to tax for fraud determined by respondent.

Respondent must prove fraud by clear and convincing evidence.

See sec. 7454(a); Rule 142(b); Rowlee v. Commissioner, 80 T.C.

1111, 1123 (1983); Drabiuk v. Commissioner, T.C. Memo. 1995-260.

Fraud requires a showing that the taxpayer intended to evade a

tax known or believed to be owing.     See Stoltzfus v. United

States, 398 F.2d 1002, 1004 (3d Cir. 1968).    In order to carry

his burden as to fraud, respondent must prove that: (1)

Petitioner underpaid his tax in each year, and (2) some part of

each underpayment was due to fraud.    See Roots v. Commissioner,

T.C. Memo. 1997-187; Lee v. Commissioner, T.C. Memo. 1995-597;

Merlino v. Commissioner, T.C. Memo. 1993-200.     Under section

6653(b)(1)(A) and (B), if respondent establishes that some part

of petitioner’s underpayment was due to fraud, the entire

underpayment is treated as attributable to fraud unless

petitioner proves otherwise.   See sec. 6653(b)(2). The mere fact

that we have sustained respondent's deficiency determination does
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not mean that petitioner underpaid his taxes for purposes of the

additions to tax for fraud.   See Parks v. Commissioner, 94 T.C.

654, 660-661 (1990); Fields v. Commissioner, T.C. Memo. 1996-425.

     Following our careful review of the record, we conclude that

respondent has clearly and convincingly proven that petitioner

underpaid his taxes for each year in issue.   See sec. 6653(c)(1)

(an “underpayment” generally is the same as a “deficiency” under

sec. 6211). The record clearly convinces us that petitioner had

gross income in 1986 and 1987, and that he should have filed

returns and reported that income.   The first prong is satisfied.

     As to the second prong, fraud is defined as an intentional

wrongdoing designed to evade tax believed to be owing.   See

Miller v. Commissioner, 94 T.C. 316, 332 (1990).   The existence

of fraud is a question of fact.   See Gajewski v. Commissioner, 67

T.C. 181, 199 (1976), affd. without published opinion 578 F.2d

1383 (8th Cir. 1978).   Fraud is never presumed or imputed; it

must be established by independent evidence that establishes a

fraudulent intent on the taxpayer’s part.    See Otsuki v.

Commissioner, 53 T.C. 96, 106 (1969).   For respondent to prevail,

he must show that petitioner intended to conceal, mislead, or

otherwise prevent the collection of taxes.    See Korecky v.

Commissioner, 781 F.2d 1566, 1568 (11th Cir. 1986), affg. per

curiam T.C. Memo. 1985-63; Stoltzfus v. United States, supra at

1004; Webb v. Commissioner, 394 F.2d 366, 377 (5th Cir. 1968),
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affg. T.C. Memo. 1966-81; Rowlee v. Commissioner, supra at 1123.

Because direct proof of a taxpayer’s intent is rarely available,

fraud may be proven by circumstantial evidence, and reasonable

inferences may be drawn from the relevant facts.   See Spies v.

United States, 317 U.S. 492, 499 (1943); Stephenson v.

Commissioner, 79 T.C. 995, 1006 (1982), affd. 748 F.2d 331 (6th

Cir. 1984); Collins v. Commissioner, T.C. Memo. 1994-409.

     We often rely on certain indicia of fraud in deciding the

existence of fraud.   Although no single factor is necessarily

sufficient to establish fraud, the presence of several indicia is

persuasive circumstantial evidence of fraud.    See Beaver v.

Commissioner, 55 T.C. 85, 93 (1970).    The “badges of fraud”

include: (1) Understatement of income; (2) inadequate records;

(3) failure to file tax returns; (4) implausible or inconsistent

explanations of behavior; (5) concealing assets; (6) failure to

cooperate with tax authorities; (7) income from illegal

activities; (8) an intent to mislead which may be inferred from a

pattern of conduct; and (9) dealings in cash.   See Bradford v.

Commissioner, 796 F.2d 303, 307 (9th Cir. 1986), affg. T.C. Memo.

1984-601; Petzoldt v. Commissioner, 92 T.C. 661, 699 (1989);

Rowlee v. Commissioner, supra at 1125.    These “badges of fraud”

are nonexclusive, and we may consider other facts indicating

fraud.    See Niedringhaus v. Commissioner, 99 T.C. 202, 211

(1992).
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     Regarding 1987, petitioner was convicted of income tax

evasion pursuant to section 7201.   As a result, petitioner is

collaterally estopped from denying liability for civil fraud with

respect to 1987.   See Gray v. Commissioner, 708 F.2d 243, 246

(6th Cir. 1983), affg. T.C. Memo. 1981-1; Roots v. Commissioner,

supra.   The second prong is met for 1987.

     As to 1986, the "badges of fraud" are plentiful, including

that petitioner: (1) Failed to file a Federal income tax return,

(2) engaged in illegal activities, (3) dealt in cash, (4) failed

to keep books and records of his illegal activities, (5)

attempted to conceal activities from law enforcement, and (6)

failed to make estimated tax payments.   Perhaps the best evidence

of petitioner's fraudulent intent came straight from his mouth.

Petitioner's deceitful conduct and motives were unknowingly

documented by secret audio tape, the transcript from which was

evidence in this case.   Petitioner bragged about the thousands of

dollars in cash he made from dealing in drugs and about

extravagant cash purchases of gems and a boat.   He expressed his

desire to get his money offshore to avoid taxes.   We are

convinced petitioner knew that he owed taxes on his 1986 income

and that he intended to evade the tax.   The second prong is

satisfied for 1986.
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     Viewing the record as a whole, we are satisfied respondent

has met his burden of proving fraud in 1986 and 1987, and we

sustain respondent's determination.

     To reflect the foregoing,



                                      An appropriate order will

                                 be issued, and decision will be

                                 entered for respondent.
