                         T.C. Memo. 1996-205



                       UNITED STATES TAX COURT



                   GEORGE M. OSSERMAN, Petitioner v.
             COMMISSIONER OF INTERNAL REVENUE, Respondent


     Docket No. 44576-86.                      Filed April 29, 1996.



     George M. Osserman, pro se.

     Maureen T. O'Brien, for respondent.



                          MEMORANDUM OPINION


     WOLFE, Special Trial Judge:    This matter is before the Court

on respondent's Motion for Partial Summary Judgment filed under

Rule 121.1    Respondent bases her Motion for Partial Summary

1
     All section references are to the Internal Revenue Code in
effect for the years in issue, unless otherwise indicated. All
Rule references are to the Tax Court Rules of Practice and
                                                   (continued...)
Judgment on the pleadings and matters deemed admitted pursuant to

Rule 90(c).   Petitioner has not responded to the pending motion.

     In three notices of deficiency dated August 20, 1986,

respondent determined the following deficiencies in and additions

to petitioner's Federal income tax.

                                     Additions to Tax
     Year         Deficiency   Sec. 6653(b)    Sec. 6654(a)

     1975           $134,599      $67,299            --
     1976          5,050,149    2,525,075            --
     1977          7,926,728    3,963,364         $253,655
     1978          2,053,106    1,026,553           65,698
     1979          1,076,634      538,317            --
     1980            441,711      220,855            --
     1981            252,288      126,144            --
     1982            325,922        --               --

Respondent also determined additions to tax for 1982 in the

amount of $32,592 under section 6661 for substantial

understatement of tax, in the amount of $81,480 under section

6651(a) for failure to timely file, in the amount of $16,296

under section 6653(a)(1) for negligence, and under section

6653(a)(2) in an amount equal to 50 percent of the interest due

on the underpayment attributable to negligence.    For the years

1975 through 1982, respondent also determined that interest on

deficiencies accruing after December 31, 1984, would be

calculated at 120 percent of the statutory rate under section

6621(c).2

1
 (...continued)
Procedure.

2
     The notices of deficiency refer to sec. 6621(d). This
                                                   (continued...)
                                 - 3 -

     On February 2, 1990, the parties filed a stipulation of

settled issues that resolved some of the issues in dispute.      On

March 28, 1990, respondent filed a First Request for Admissions

(First Request).   Respondent mailed her First Request to

petitioner at four different addresses, including the address

provided by petitioner in the stipulation of settled issues.     On

April 13, 1990, respondent notified the Court that her First

Request had subsequently been mailed to petitioner at still

another address in Boca Raton, Florida.    Petitioner did not

answer or object to respondent's First Request.

     On August 3, 1993, respondent filed a Second Request for

Admissions (Second Request) and mailed it to petitioner at the

Boca Raton address in Florida.    Petitioner did not answer or

object to respondent's Second Request.    By Order dated October 5,

1993, the Court requested petitioner and respondent to file

Status Reports with the Court before November 5, 1993.




2
 (...continued)
section was redesignated as sec. 6621(c) by sec. 1511(c)(1)(A) of
the Tax Reform Act of 1986, Pub. L. 99-514, 100 Stat. 2085, 2744
and repealed by sec. 7721(b) of the Omnibus Budget Reconciliation
Act of 1989 (OBRA 89), Pub. L. 101-239, 103 Stat. 2106, 2399,
effective for tax returns due after Dec. 31, 1989, OBRA 89 sec.
7721(d), 103 Stat. 2400. The repeal does not affect the instant
case. For simplicity, we will refer to this section as sec.
6621(c). The annual rate of interest under sec. 6621(c) for
interest accruing after Dec. 31, 1984, equals 120 percent of the
interest payable under sec. 6601 with respect to any substantial
underpayment attributable to tax-motivated transactions.
                               - 4 -

Respondent complied with this Order, but petitioner failed to

respond.

     On November 23, 1993, respondent filed her Motion for

Partial Summary Judgment.   Respondent seeks partial summary

adjudication of the following issues raised in the notices of

deficiency for taxable years 1975 through 1981:   (1) That

petitioner received other or miscellaneous income during 1976,

1977, and 1978 in the respective amounts of $1,684,916,

$2,000,536, and $2,926,612; (2) that petitioner is not entitled

to certain losses from the partnerships S-J Minerals Associates

III, L.P., and G & O Associates for 1976 and 1977; (3) that

petitioner is not entitled to deduct mining losses in the amount

of $10 million for each of the years 1977 through 1980, and in

the amount of $100,000 for 1981; (4) that petitioner is not

entitled to carry forward certain net operating losses to 1976

through 1981; (5) that petitioner is liable for additions to tax

for fraud pursuant to section 6653(b) for the taxable years 1975

through 1981; and (6) that assessment is not time barred for the

years 1975 through 1981.

     Because petitioner failed to respond to respondent's

requests for admissions, the facts contained therein are deemed

admitted.   Rule 90(c); Marshall v. Commissioner, 85 T.C. 267, 272

(1985); Freedson v. Commissioner, 65 T.C. 333, 334-336 (1975),

affd. on another issue 565 F.2d 954 (5th Cir. 1978).   The
                               - 5 -

findings of fact herein are based upon our review of the record,

in particular petitioner's pleadings and the deemed admissions.

     Petitioner resided in Boston, Massachusetts, when his

petition was filed.   Petitioner practiced law during the 1970's

in New York and Massachusetts with Paul Garfinkle (Garfinkle) and

others.   He and Garfinkle organized and promoted tax-oriented

limited partnerships during the 1970's, including shelters

relating to movies, master recordings, real estate, and mining.

These partnerships fall into two distinct subgroups that we

collectively refer to as the "S-J partnerships"3 and the "Real

Estate partnerships."4

     Petitioner prepared and filed Federal income tax returns for

the taxable years 1975, 1976, and 1979-82, but failed to file

returns for 1977 and 1978.   On May 31, 1984, petitioner filed

documents with the Internal Revenue Service that purported to be

Forms 1040, U.S. Individual Income Tax Returns for 1977 and 1978.

These documents were not valid returns; they contained false

statements concerning petitioner's liabilities for 1977 and 1978,

and they were filed to mislead the Internal Revenue Service.


3
     The S-J partnerships include: S-J Mineral Associates, L.P.;
S-J Mineral Associates II, L.P.; S-J Mineral Associates III,
L.P.; INAS Associates, L.P. (an acronym for International
Associates, L.P.); and G & O Associates.
4
     The Real Estate partnerships include: That Certain
Encounter; Tudor Associates, Ltd. I; Tudor Associates, Ltd. II;
Applewood Associates, Ltd.; Harrison Associates, Ltd.; O and G
Associates, Ltd.; and Providence Place Associates, Ltd.
                               - 6 -

     The promotion of the S-J partnerships was a fraudulent tax

shelter promotion.   In a class action, the District Court entered

a conclusion of law that petitioner and Garfinkle engaged in

acts, practices, and a course of business that operated as a

fraud and deceit upon purchasers of limited partnership interests

in the S-J partnerships.5   Petitioner has previously pled guilty

to crimes of fraud and deceit arising from the S-J partnerships,

including:   (1) Mail fraud; (2) aiding, assisting, and advising

in the preparation of an individual income tax return which was

fraudulent as to material fact; and (3) willfully and knowingly

conspiring to devise a scheme to defraud and to obtain money from

the Internal Revenue Service by means of false representations.

     For the years 1975 through and including 1982, petitioner

failed to maintain complete and adequate books and records of his

income-producing activities, and he failed to cooperate with

respondent's agents in submitting his books and records to them

for examination.   In addition, petitioner fraudulently and with

intent to evade tax made or caused to be made false and

misleading representations to agents of respondent during their

investigation of entities with which petitioner was associated

and for which he claimed deductions on his returns for the

taxable years 1974-76 and 1979-81.

5
     The class action referred to above was brought by investors
in the S-J partnerships. Den Haene v. Inas Associates, L.P., No.
78 civ. 4360 (CES) (S.D.N.Y., filed Nov. 2, 1984).
                               - 7 -

     With the intent to evade taxes, petitioner fraudulently

claimed partnership losses from real estate, coal mining, movies,

and diamond mining ventures on each of his purported returns for

the years 1975 through 1981.   Petitioner also fraudulently failed

to report on his Federal income tax return for 1976, and his

purported return for 1977, all or a substantial portion of the

income he received during those years from the sale of limited

partnership interests in the S-J partnerships.    A part of the

underpayment of tax required to be shown on his tax returns for

each of the years 1975 through 1981 was due to fraud.

     Summary judgment is intended to expedite litigation and

avoid unnecessary and expensive trials.   Pope & Talbot, Inc., &

Subs. v. Commissioner, 104 T.C. 574, 575 (1995); Florida Peach

Corp. v. Commissioner, 90 T.C. 678, 681 (1988).    Summary judgment

may be granted with respect to all or any part of the legal

issues in controversy "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);

O'Neal v. Commissioner, 102 T.C. 666, 674 (1994) (quoting Kroh v.

Commissioner, 98 T.C. 383, 389 (1992)).

     The moving party bears the burden of proving that there is

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

made in a manner most favorable to the party opposing summary
                               - 8 -

judgment.   Dahlstrom v. Commissioner, 85 T.C. 812, 821 (1985).

The opposing party cannot rest upon mere allegations or denials,

but must set forth specific facts showing there is a genuine

issue for trial.   Rule 121(d); O'Neal v. Commissioner, supra;

Webb v. Commissioner, T.C. Memo. 1996-50.   However, the opposing

party need not come forth with affidavits or other documentary

evidence unless the moving party makes a prima facie showing of

the absence of a factual issue.   Shiosaki v. Commissioner, 61

T.C. 861 (1974); Fason v. Commissioner, T.C. Memo. 1996-138.

     As we have noted above, under Rule 90(c), each statement set

forth in a request for admissions served on a party is deemed

admitted unless a response thereto is served upon the requesting

party within 30 days after service of the request.     Alexander v.

Commissioner, 926 F.2d 197, 198-199 (2d Cir. 1991), affg. per

curiam T.C. Memo. 1990-315; Dahlstrom v. Commissioner, supra at

817-818; Freedson v. Commissioner, 65 T.C. at 334-336.    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. at 272;

Morrison v. Commissioner, 81 T.C. 644, 651-652 (1983).

Other or Miscellaneous Income for 1976, 1977, and 1978

     In a notice of deficiency, respondent determined that

petitioner had failed to report commission income in the amount

of $1,684,916 on his 1976 Federal income tax return.    Respondent

also determined that petitioner had "failed to file a tax return"
                                - 9 -

for the years 1977 and 1978, and therefore failed to report other

or miscellaneous income for those years in the respective amounts

of $2,000,536 and $2,926,612.

     Relevant portions of the record include the following.

Petitioner admits that he sold interests in the S-J partnerships

during 1976 and 1977.   Petitioner admits that he received

substantial amounts of cash from the sales proceeds of the

limited partnership interests in the S-J partnerships.

Petitioner cannot give an exact accounting of the amount of cash

so received, or the time he received the cash.   He failed to

maintain books and records providing an accurate accounting of

the cash he received from these sales.   Nevertheless, he admits

that he received "approximately $1,720,916".   Petitioner admits

that he fraudulently failed to report "all or a substantial

portion of" the income he received during 1976 and 1977 from the

sale of limited partnership interests in the S-J partnerships.

     Respondent seeks partial summary judgment as to the amount

of other or miscellaneous income for 1976 that she determined in

the notice of deficiency, $1,684,916.6   Petitioner's admissions

establish that over a 2-year period, during 1976 and 1977, he

received approximately $1,720,916 in commissions.   However, these

6
     In the notice of deficiency respondent listed the source of
payments by which she determined petitioner's unreported
commission income. It is a list of bank deposits referencing the
respective banks, account numbers, check numbers, check dates,
and amounts. The underlying documentation concerning these items
is not included in the record before us on this motion.
                                - 10 -

admissions fail to disclose exactly how much of that amount he

received in 1976 as opposed to 1977, or how much he failed to

report in 1976.   Petitioner's deemed admissions do not allocate

his commission income between 1976 and 1977, the years when

petitioner admits that he sold interests in the S-J partnerships.

The record before us on this motion does not include detailed

information concerning petitioner's other or miscellaneous income

for 1976.   Consequently, while the record indicates that

petitioner failed to report commission income in 1976, respondent

has not made a prima facie showing of the amount of such income

that petitioner failed to report that year.

     As for taxable years 1977 and 1978, in 1984 petitioner filed

documents with the Internal Revenue Service which purported to be

Forms 1040 for those earlier years.      On line 20 of his purported

1977 Form 1040, petitioner reported other income in the amount of

$2,000,536.   On line 20 of his purported 1978 Form 1040,

petitioner reported other income in the amount of $2,926,612.

Respondent determined that petitioner had failed to file returns

for 1977 and 1978, and therefore that petitioner had failed to

report other or miscellaneous income for those years in the

respective amounts of $2,000,536 and $2,926,612.

     With respect to the amount of petitioner's other or

miscellaneous income, the relevant portions of the record for

1977 and 1978 are as follows.    Petitioner contends in his

petition that respondent's determinations of additional taxable
                              - 11 -

income for 1977 and 1978 (in addition to the other years in

issue) are erroneous.   Respondent asserts in her answer the same

determinations that she made in the notices of deficiency.     In

his reply to respondent's answer, petitioner specifically denies

respondent's determinations of taxable income for the years in

issue, which includes her determinations of other or

miscellaneous income.   Petitioner's denial, in relevant part,

states:

     Petitioner denies that he ever had any potentially
     taxable income even vaguely close to the amount alleged
     by Respondent, and that his total gross receipts for
     the periods in question totaled $12,210,610, exclusive
     of Deductions, as follows: [Emphasis added.]

           * * *
           1977 -    $2,022,392.00
           1978 -    $2,926,612.00

We note that the amounts of taxable income denied by petitioner

for 1977 and 1978 are the same amounts of other income petitioner

reported on his purported Forms 1040 for 19777 and 1978.

     From the record before us on this motion, we conclude that

respondent has failed to make a prima facie case that there

exists no genuine issue of material fact regarding petitioner's

receipt of other or miscellaneous income in the respective

amounts of $2,000,536 and $2,926,612 for taxable years 1977 and

1978.   Although petitioner reported these same amounts as other

7
     On his purported 1977 Form 1040, petitioner reported other
income in the amount of $2,000,536, dividend income in the amount
of $8,998, and interest income in the amount of $12,858, for a
total amount of income of $2,022,392.
                             - 12 -

income on his purported returns for 1977 and 1978, respondent has

determined and petitioner has admitted that the purported Forms

1040 he filed for taxable years 1977 and 1978 were not valid

returns, and that petitioner did not otherwise file Federal

income tax returns for 1977 and 1978.8    The relevant portions of

the record are respondent's determinations, petitioner's

contention that they are erroneous, respondent's pleading of the

same determinations, and petitioner's specific denial of them.

These documents do not establish a prima facie showing of the

absence of a factual issue regarding petitioner's other or

miscellaneous income for 1977 and 1978.

     In accordance with the foregoing, we hold that genuine

issues of material fact exist regarding petitioner's other or

miscellaneous income for taxable years 1976, 1977, and 1978, and

deny respondent's motion for partial summary judgment with

respect to the amounts of petitioner's other or miscellaneous

income for those years.

1976 and 1977 Loss Disallowance

     In her notices of deficiency, respondent disallowed losses

claimed by petitioner on his 1976 and purported 1977 Federal

8
     We are not unmindful that petitioner's purported Forms 1040
arguably may have some probative value. However, given the
fraudulent nature of these returns and respondent's specific
rejection of them, we consider them insufficient evidence to
establish a prima facie showing of the absence of a factual issue
regarding the amount of petitioner's other or miscellaneous
income for 1977 and 1978.
                                - 13 -

income tax returns from G & O Associates (G & O) and S-J Mineral

Associates III (S-J III) as follows:

          Year      Partnership           Loss Claimed

          1976      S-J   III             $6,979,298
          1976      G &   O                2,520,403
          1977      S-J   III                297,818
          1977      G &   O                   98,298

In addition, respondent determined that S-J III and G & O earned

income in 1977, and that petitioner's distributive shares thereof

were $2,303,276 and $6,978,311, respectively.   Petitioner

admitted that the S-J III and G & O partnerships lacked economic

substance and had no business purpose; that the losses he

deducted from them are not allowable; and that his correct

distributive share of ordinary income or loss from S-J III and G

& O for each of the years 1976 and 1977 is zero.   We find no

genuine issue of material fact on this issue.   We shall grant

respondent's motion for partial summary judgment with respect to

a finding that petitioner is not entitled to certain losses from

the partnerships S-J Minerals Associates III, L.P. and G & O

Associates for 1976 and 1977.

Mining Losses for 1977-81

     In the notices of deficiency, respondent disallowed mining

losses claimed by petitioner in the amount of $10 million on each

of his purported Schedules C for the years 1977 and 1978, as well

as his Schedules C for 1979 and 1980.    Respondent also disallowed

a mining loss claimed by petitioner in the amount of $100,000 on
                                - 14 -

his 1981 Schedule C.   Petitioner admitted that these losses

related to an alleged diamond mining venture; that he did not own

any diamond mining rights; and that he knew he did not own any

diamond mining rights and was not entitled to any mining losses

for the years 1977-81.   We find no genuine issue of material fact

on this issue.   We shall grant respondent's motion for partial

summary judgment with respect to a finding that petitioner is not

entitled to deduct mining losses in the amount of $10 million for

each of the years 1977 through 1980, and in the amount of

$100,000 for 1981.

Net Operating Loss Carryovers

     In the notices of deficiency, respondent disallowed net

operating losses claimed by petitioner in the years 1976 through

1981 that purportedly arose from his interests in the Imperial

Finance Tax Shelter Project (Imperial Finance), the S-J

partnerships, the Real Estate partnerships, and his purported

Schedule C mining activities.    In his reply to respondent's

answer, petitioner admitted that he has carried forward some of

these losses.

     Petitioner admitted that the S-J partnerships' economic

function was to create tax losses, that they lacked economic

substance and had no business purpose, and that he is not

entitled to the loss resulting from the flow through of any

advance royalty "payment" by the S-J partnerships.    In the

stipulation of settled issues, petitioner conceded that he is not
                              - 15 -

entitled to any losses arising from the Real Estate partnerships.

Petitioner also is not entitled to any losses from Imperial

Finance.   In Fredkin v. Commissioner, T.C. Memo. 1986-154, affd.

870 F.2d 801 (1st Cir. 1989), this Court disallowed claimed

royalty deductions flowing from the corporation Imperial Finance

NV.   By order dated July 21, 1993, the Court's opinion in the

Fredkin case was deemed determinative of the Imperial Finance

issues in this case.   We find no genuine issue of material fact

on this issue.   We shall grant respondent's motion for partial

summary judgment that petitioner is not entitled to carry forward

certain net operating losses to 1976 through 1981.

Section 6653(b) Addition to Tax for Fraud

      Section 6653(b) provides for the imposition of an addition

to tax if any part of any underpayment of tax required to be

shown on the return is due to fraud.   Fraud has been described as

an intent to evade taxes known to be owing by conduct intended to

mislead, conceal, or prevent tax collection.   Hebrank v.

Commissioner, 81 T.C. 640, 642 (1983); Rowlee v. Commissioner, 80

T.C. 1111, 1123 (1983); McDonald v. Commissioner, T.C. Memo.

1996-87.   Respondent has the burden of proving by clear and

convincing evidence two elements:   (1) The existence of an

underpayment of tax for each year, and (2) that some part of the

underpayment is due to fraud with an intent to evade tax.     Sec.

7454(a); Rule 142(b); Hebrank v. Commissioner, supra.
                              - 16 -

     Fraud is never imputed or presumed.   Beaver v. Commissioner,

55 T.C. 85, 92 (1970).   Fraudulent intent may be established by

circumstantial evidence and reasonable inferences drawn from the

record, including facts deemed admitted under Rule 90(c).

Clayton v. Commissioner, 102 T.C. 632, 647 (1994); Coninck v.

Commissioner, 100 T.C. 495, 499 (1993); Marshall v. Commissioner,

85 T.C. at 272; Morrison v. Commissioner, 81 T.C. 644, 651-652

(1983); Alexander v. Commissioner, T.C. Memo. 1990-315.     Indicia

of fraud include:   Understating income, inadequate records,

failing to file tax returns, failing to cooperate with tax

authorities, and engaging in illegal activities.   Bradford v.

Commissioner, 796 F.2d 303, 307-308 (9th Cir. 1986), affg. T.C.

Memo. 1984-601.

     The losses petitioner claimed from the S-J partnerships, the

Real Estate partnerships, and his purported Schedule C mining

activities contributed to underpayments for the years 1975

through 1981.   Petitioner admitted that his claim of partnership

losses from real estate, coal mining, movies, and diamond mining

ventures on each of his purported returns for the years 1975

through 1981 was fraudulent with the intent to evade taxes.

Petitioner further admitted that, with the intent to evade tax,

he fraudulently claimed $100,000 in losses from mining on his

1981 return, and $10 million on each of his 1979 and 1980

returns, as well as on the documents purporting to be returns for

the years 1977 and 1978.
                                - 17 -

     On his 1976 return, petitioner understated his income, and

he admitted that all or a part of the understatement of tax

required to be shown on his return for that year was due to

fraud.   Petitioner failed to file Federal income tax returns for

the years 1977 and 1978.    In 1984, he filed documents intended to

mislead the Internal Revenue Service that purported to be Forms

1040 for 1977 and 1978.    Said documents were not valid returns

and contained false statements concerning his liabilities for

those years.   Finally, petitioner failed to cooperate with

respondent's agents in submitting his books and records to them

for examination, as well as those of the S-J partnerships.    We

find no genuine issue of material fact on this issue.    We shall

grant respondent's motion for partial summary judgment with

respect to the section 6653(b) addition to tax for fraud for each

of the years 1975-81.

Statute of Limitations

     Section 6501(c) provides that in the case of a false or

fraudulent return filed with the intent to evade tax, or a

willful attempt in any manner to defeat or evade tax, or a

failure to file a return, the tax may be assessed at any time.

The record discloses that petitioner filed false or fraudulent

returns for the years 1975, 1976, 1979, and 1981, that he

attempted to defeat or evade tax for those same years, as well as

for 1977 and 1978, and that he failed to file tax returns for the

years 1977 and 1978.     We find no genuine issue of material fact
                              - 18 -

on this issue.   We shall grant respondent's motion for partial

summary judgment with respect to a finding that the notices of

deficiency herein were timely mailed to petitioner and that

assessment is not time barred.    Secs. 6213, 6501(c); see

Alexander v. Commissioner, T.C. Memo. 1990-315.

     We shall grant respondent's Motion for Partial Summary

Judgment with respect to all of the issues raised therein, except

the issue of other or miscellaneous income determined for taxable

years 1976, 1977, and 1978.

     In order to reflect the foregoing,


                                      An appropriate order will be

                                 issued granting respondent's Motion

                                 for Partial Summary Judgment in

                                      part and denying her motion in

                                      part.
