                               T.C. Memo. 2014-251



                         UNITED STATES TAX COURT



                    LEROY MUNCY, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 27807-11.                          Filed December 15, 2014.



      Leroy Muncy, pro se.

      Ann Louise Darnold and H. Elizabeth H. Downs, for respondent.



            MEMORANDUM FINDINGS OF FACT AND OPINION


      NEGA, Judge: Respondent determined deficiencies and additions to tax

and asserted increased deficiencies with respect to petitioner as follows:1


      1
      Unless otherwise indicated, all section references are to the Internal
Revenue Code in effect for the years at issue, and all Rule references are to the
                                                                       (continued...)
                                           -2-

  [*2]                                       Additions to tax
  Year       Deficiency1    Sec. 6651(f)     Sec. 6651(a)(2)     Sec. 6654(a)
 2000          $60,957        $44,194            $15,239            $3,279
 2001           53,915          39,088            13,479             2,155
 2002           51,216          37,132            12,804             1,711
 2003           54,199          39,294            13,550             1,398
 2004           64,759          46,950            16,190             1,856
 2005           60,022          43,516            15,006             2,408

         1
         Respondent originally determined deficiencies of $10,924, $6,881, and
$7,435 for 2003, 2004, and 2005, respectively by reducing petitioner’s total
corrected tax liabilities for these years (the numbers above) by the amounts of
restitution ordered by the U.S. District Court for the Eastern District of Arkansas.
Respondent now asserts, in his amendment to answer, that the total corrected tax
liabilities unreduced by the restitution amounts are the appropriate tax deficiencies
for these years.

         The issues for decision are: (1) whether petitioner had unreported income

for the taxable years 2000 through 2005 (years at issue); (2) whether petitioner is

liable for the additions to tax for these years; and (3) whether petitioner is liable

for a penalty under section 6673 on the grounds that petitioner’s arguments are

frivolous and that the proceeding was commenced and maintained primarily for

delay.


         1
       (...continued)
Tax Court Rules of Practice and Procedure. All monetary amounts are rounded to
the nearest dollar.
                                         -3-

[*3]                           FINDINGS OF FACT

       Petitioner resided in Arkansas at the time the petition was filed. Petitioner

failed to file Federal income tax returns and pay estimated tax for tax years 2000

through 2005. Respondent prepared substitutes for returns (SFRs) for these years

pursuant to section 6020(b).

       From 1978 through 2005 petitioner worked as a wholesale tire salesman at

Beacon Tire, Inc. (Beacon Tire). Petitioner was treated as an employee of Beacon

Tire until 1994. Around this time petitioner was exposed to an antitaxation group

that convinced him that his wages were not taxable and that it was illegal for

Beacon Tire to withhold tax from his wages. At his insistence Beacon Tire

stopped withholding petitioner’s income tax.

       In 1998 petitioner began working with individuals who promoted tax-

avoidance schemes. The plan was to set up employment agencies to receive

petitioner’s wages so the wages would not be reported in his name or paid directly

to him. Accordingly, petitioner became a “contractor” for a company called

Contract Select, Inc. (Contract Select), and a contract was entered into between

Beacon Tire and Contract Select. Although petitioner was allegedly an

“independent contractor” for Contract Select (which eventually became Accurate

Consulting), no other aspects of petitioner’s job or duties changed. Beacon Tire
                                         -4-

[*4] continued to reimburse petitioner for all his business expenses, provided him

with a company vehicle to drive, and determined his earnings. Checks for

earnings were sent to Contract Select (from 1999 to 2002) and Accurate

Consulting (from 2002 to 2005) and were either: (1) deposited or transferred into

a trust or a nominee account that petitioner created; (2) cashed by petitioner; or (3)

endorsed over to a third party. Petitioner made all decisions regarding the receipt,

deposit, or disbursement of income that Beacon Tire paid to these entities. Upon

petitioner’s insistence, no Forms W-2, Wage and Tax Statement, nor any version

of Form 1099 were issued to petitioner by Contract Select or Accurate Consulting

to report income paid to him for tax years 2000 through 2005.

      Petitioner was investigated by the Criminal Investigation Division of the

Internal Revenue Service (IRS) after audits revealed that petitioner was using an

abusive tax scheme and was claiming to be a “sovereign, living soul” who was not

a citizen of the United States or the State of Arkansas and not a party to the United

States Constitution. During the investigation no valid business purpose was

discovered to explain why petitioner’s income was sent to Contract Select or

Accurate Consulting. In an attempt to impede the investigation, petitioner filed

over 70 Freedom of Information Act requests with the IRS.
                                        -5-

[*5] In January 2010 petitioner pleaded guilty to one count2 of willful attempt to

evade and defeat his individual income tax for the 2004 tax year.3 His criminal

plea agreement stated: “Except to the extent otherwise expressly specified herein,

this Agreement does not bar or compromise any civil or administrative claim

pending or that may be made against the defendant, including but not limited to

tax matters.” The plea agreement also stated: “This Agreement is binding only

upon the United States Attorney’s Office for the Eastern District of Arkansas and

the defendant. It does not bind * * * any other federal, state or local prosecuting,

administrative, or regulatory authority.”

      In its judgment filed October 26, 2010, the District Court placed petitioner

on probation for three years and required him to file tax returns as a condition of

the probation. United States v. Muncy, No. 4:10-cr-00018-BSM (E.D. Ark. filed

Jan. 8, 2010). The judgment also deferred the full determination of restitution, or


      2
        Specifically, the count states that petitioner “knowingly utilized various
shell entities and abusive trusts to prevent withholding by his employer, then
intentionally refused to file his tax returns, for the purpose of willfully avoiding
the payment of such individual income taxes that would have been due or owing.
Such taxes were substantial. Such conduct by * * * [petitioner] was in violation of
Title, 26, U.S.C., Section 7201.”
      3
        The Information Sheet states: “On or about April 15, 2005, * * *
[petitioner] willfully attempt[ed] to evade and defeat his individual income tax
imposed by law for the calendar year 2005.” We take this to mean that the charge
relates to the 2004 tax year.
                                         -6-

[*6] what it called “criminal monetary penalties”, until a later date. Soon after, a

restitution report was filed determining restitution amounts of $43,275, $57,878,

and $52,587 for tax years 2003 through 2005, respectively. An order was entered

on January 25, 2011, reflecting this determination.

      On September 7, 2011, respondent mailed a notice of deficiency to

petitioner and attached a Form 4549-A, Income Tax Discrepancy Adjustments. In

the notice respondent calculated petitioner’s total corrected tax liability for each

year. For each of the tax years 2000 through 2002 petitioner’s deficiency amount

was his total corrected tax liability. For each of the tax years 2003 through 2005

respondent reduced petitioner’s total corrected tax liability by the amounts of

criminal restitution ordered for that year to come up with the deficiency amount.

On September 30, 2013, respondent made assessments of the restitution in his

internal records. On June 13, 2014, respondent filed a first amendment to answer

stating that petitioner’s deficiency for each of the tax years 2003 through 2005

should be petitioner’s total corrected tax liability for that year unreduced by the

amount of criminal restitution for that year.

      Petitioner asserts that the restitution report and the order for restitution

represent the full settlement of his tax liabilities for 2003 through 2005. There is
                                         -7-

[*7] no evidence that petitioner has satisfied his criminal restitution order or

received any discharge.

      During the pendency of this case, petitioner has served on respondent a

“First Formal Discovery Request”, a “Second Formal Discovery Request”, and

interrogatories seeking information about the employment status and authority of

IRS personnel. On February 18, 2014, petitioner filed a motion to compel

discovery in an attempt to obtain this information. By order dated March 13,

2013, the Court denied this motion on the grounds that it advanced a frivolous

argument and did not relate to the issues in the case. Thereafter, petitioner filed a

motion requesting a determination of the existence of the Court’s subject matter

jurisdiction, essentially repeating his arguments regarding the inadequate

delegated authority of IRS personnel. By order dated April 3, 2014, the Court

denied petitioner’s motion and reminded him of the frivolous nature of his

arguments.

                                      OPINION

I.    Petitioner’s Tax Liability

      Generally, the Commissioner’s determination of a deficiency is presumed

correct, and the taxpayer has the burden of proving it incorrect. Rule 142(a);

Welch v. Helvering, 290 U.S. 111, 115 (1933). However, the Commissioner
                                        -8-

[*8] generally bears the burden of proof with respect to any increases in

deficiency. Rule 142(a).

      Petitioner contends that respondent’s deficiency determinations for tax years

2000 through 2005 are “null and void” because the notice of deficiency was not

“issued and sent by a duly authorized delegate of the Secretary”. Petitioner also

contends that respondent’s deficiency determinations for tax years 2003 through

2005 contravene petitioner’s criminal plea agreement and judgment. Petitioner

argues in the alternative that the proper deficiency amounts are those set out in the

notice of deficiency because they allow a credit for the amounts of restitution

ordered for tax years 2003 through 2005.

      Petitioner’s argument regarding the authority of IRS employees is similar to

those we have previously held to be without merit. In numerous opinions, we

have determined that arguments questioning the authority of IRS employees to

sign and issue documents are frivolous. See, e.g., Roye v. Commissioner, T.C.

Memo. 2012-246; Cooper v. Commissioner, T.C. Memo. 2006-241, slip op. at 5

(“We note that all of petitioner’s arguments are specious and without substance,

and many of them have been offered by others who are merely attempting to avoid

the payment of Federal tax.”); Kozack v. Commissioner, T.C. Memo. 2005-246;

see also Wnuck v. Commissioner, 136 T.C. 498, 501-513 (2011); cf. Crain v.
                                         -9-

[*9] Commissioner, 737 F.2d 1417, 1417 (5th Cir. 1984) (“We perceive no need to

refute * * * [petitioner’s] arguments with somber reasoning and copious citation of

precedent; to do so might suggest that * * * [his] arguments have some colorable

merit.”).

      Petitioner also contends that respondent erred in determining deficiencies

for the taxable years 2003 through 2005 because the deficiencies contravene his

criminal plea agreement and judgment. Specifically, petitioner contends that the

District Court determined his tax liabilities for 2003 through 2005 and that

respondent is collaterally estopped from relitigating these amounts.4 Although the

District Court ordered specific restitution amounts for each of the tax years 2003

through 2005, petitioner’s tax liabilities for each of these years were not an

essential element of the Government’s case and were not actually litigated. See

sec. 7201; Morse v. Commissioner, 419 F.3d 829, 834 (8th Cir. 2005), aff’g T.C.

Memo. 2003-332; Peck v. Commissioner, 90 T.C. 162, 166-167 (1988) (holding

that “[t]he parties must actually have litigated the issues and the resolution of these


      4
       Similarly, petitioner argues that the doctrine of res judicata applies for
these years. We note that collateral estoppel, rather than the related doctrine of res
judicata, may apply when a civil case follows a criminal case. See Helvering v.
Mitchell, 303 U.S. 391, 397 (1938) (“The difference in degree of the burden of
proof in criminal and civil cases precludes application of the doctrine of res
judicata.”); United States v. Barnette, 10 F.3d 1553, 1560-1561 (11th Cir. 1994).
                                        - 10 -

[*10] issues must have been essential to the prior decision” in order for collateral

estoppel to apply), aff’d, 904 F.2d 525 (9th Cir. 1990); Senyszyn v.

Commissioner, T.C. Memo. 2013-274, at *9-*10 (“Although the existence of an

underpayment in tax is a necessary element of tax evasion under section 7201, the

determination of an exact liability evaded is not.”). Therefore, respondent is not

collaterally estopped from determining deficiencies relating to tax years 2003

through 2005.5

      In the alternative, petitioner contends that the increased deficiencies

asserted in respondent’s amendment to answer for tax years 2003 through 2005

should be reduced by the amounts of restitution ordered for these years.

Essentially, petitioner contends that the amounts originally determined in the

notice of deficiency are the correct amounts of deficiencies.

      Initially, respondent determined deficiencies for tax years 2003 through

2005 by calculating petitioner’s total corrected tax liability for each of these years

      5
        Furthermore, petitioner’s plea agreement expressly states that it “does not
bar or compromise any civil or administrative claim pending or that may be made
against the defendant, including but not limited to tax matters.” The plea
agreement states that it is “binding only upon the United States Attorney’s Office
for the Eastern District of Arkansas and the defendant” and “does not bind * * *
any other federal, state or local prosecuting, administrative or regulatory
authority.” The criminal judgment refers to the restitution payments as “criminal
monetary penalties” and makes no mention of civil liabilities or penalties. There
is no overpayment for the Court to consider under sec. 6512(b).
                                         - 11 -

[*11] and subtracting the respective amounts of restitution ordered by the District

Court. Subsequently, in his amendment to answer, respondent asserted that the

amounts of restitution should not be subtracted from the calculated total corrected

tax liability for each of these years.

      Respondent met his burden of proof with respect to these “increases in

deficiencies” asserted in his amended answer. Specifically, respondent offered

into evidence invoices from Contract Select and Accurate Consulting to Beacon

Tire as well as canceled checks from Beacon Tire to these agencies documenting

payments for petitioner’s wages. These documents verify that petitioner received

income in the amounts respondent determined. Petitioner conceded at trial that he

received income from Contract Select and Accurate Consulting, and it was his

responsibility to show that the amounts he received from these agencies were

nontaxable. See Dodge v. Commissioner, 981 F.2d 350, 353 (8th Cir. 1992), aff’g

in part, rev’g in part 96 T.C. 172 (1991). Petitioner did not show that these

amounts were in error or were not taxable.

      This leaves us with the question of whether respondent should reduce his

deficiency determinations by amounts of restitution previously ordered by the

District Court. The restitution statute expressly contemplates that a civil claim

may be brought after the criminal prosecution by providing that the amount paid
                                       - 12 -

[*12] under a restitution order “shall be reduced by any amount later recovered as

compensatory damages for the same loss by the victim in * * * any Federal civil

proceeding”. 18 U.S.C. 3664(j)(2)(A) (2012). The reverse applies as well: Any

amount paid to the IRS as restitution for taxes owed must be deducted from any

civil judgment the IRS obtains to collect the same tax deficiency. United States v.

Tucker, 217 F.3d 960, 962 (8th Cir. 2000). This seems to imply that a civil

judgment must be entered before the IRS reduces a taxpayer’s tax liability by

amounts of restitution paid.

      Furthermore, section 6211(a) defines a “deficiency” as the correct tax for a

year minus “amounts previously assessed * * * as a deficiency”. Before the

enactment of sections 6201(a)(4) and 6213(b)(5), the Court held that amounts paid

to satisfy restitution ordered by a District Court are not amounts “previously

assessed[6] * * * as a deficiency” for purposes of section 6211(a)(1) and do not

reduce a deficiency determination. Weber v. Commissioner, T.C. Memo. 1995-

125, 1995 WL 128456, at *6 (emphasis added).

      The enactment of sections 6201(a)(4) and 6213(b)(5) follows the logic of

both the restitution statute and the Court’s prior holding. Section 6201(a)(4)


      6
     “Previously assessed” means assessed before our decision. See Winter v.
Commissioner, 135 T.C. 238, 276 n.4 (2010).
                                       - 13 -

[*13] applies to restitution orders entered after August 16, 2010, and provides that

the Service “shall assess and collect the amount of restitution under an order * * *

for failure to pay any tax imposed under * * * [title 26] in the same manner as if

such amount were such tax.”

      The plain language of section 6201(a)(4) states that the IRS shall assess and

collect restitution previously ordered by a District Court “in the same manner as if

such amount were such tax.” (Emphasis added.) This language is almost identical

to the language in section 6305(a), which provides that the IRS shall assess and

collect amounts certified by the Secretary of Health and Human Services as

delinquent spousal and child support payments “in the same manner * * * as if

such amount were a tax imposed by subtitle C”. Section 6305(b) goes on to state

that delinquent spousal and child support payments assessed and collected by the

IRS “as if” they were a tax under that provision are not subject to judicial review

by the Tax Court--or any other Federal Court, for that matter. In other words,

delinquent spousal and child support payments assessed under section 6305 “as if”

they were a tax are not assessed “as a deficiency”. See Murray v. Commissioner,

24 F.3d 901, 903 (7th Cir. 1994) (“Unlike a summary assessment, a deficiency

assessment requires the IRS to follow a number of statutory steps before it may

undertake to collect the deficiency.”); see also Prestwich v. IRS, 796 F.2d 582,
                                        - 14 -

[*14] 584 (1st Cir. 1986) (“Section 6305(b) therefore reflects the logical intent of

Congress to keep the IRS from becoming embroiled in matters between states and

individuals in which the federal agency has no direct involvement.”).

      Another reference point for the analysis of the plain language in section

6201(a)(4) is section 6665(a)(1), which provides that additions to tax, additional

amounts, and civil penalties “shall be assessed, collected, and paid in the same

manner as taxes”. (Emphasis added.) We believe the distinction between “as if”

and “as” is significant. Although this provision requires deficiency procedures for

some additions to tax (e.g., for failure to report tips under section 6652(b)), section

6665(b) goes on to say that certain additions to tax are not assessed, collected, and

paid in the same manner as taxes and the regular deficiency procedures for

assessment and collection do not apply to them. See sec. 6665(b) (“For purposes

of subchapter B of chapter 63 * * * subsection (a) [of section 6665] shall not apply

to any addition to tax under section 6651, 6654, [or] 6655[.]”). Instead, these

other additions to tax are summarily assessed. Meyer v. Commissioner, 97 T.C.

555, 559-560 (1991).

      Similarly, section 6213(b)(5), which applies to notices of assessments of

restitution, states that regular deficiency procedures do not apply to amounts of

restitution assessments. See sec. 6213(b)(5)(B) (“If the taxpayer is notified that an
                                        - 15 -

[*15] assessment has been or will be made pursuant to section 6201(a)(4) * * *

subsection (a) [of section 6213, pertaining to the procedures to challenge a

deficiency in Tax Court] shall not apply with respect to the amount of such

assessment.”). Although neither section 6201(a)(4) nor section 6213(b)(5)

explicitly states that assessed restitution amounts may not be considered in the

definition of a deficiency under section 6211, we believe common sense dictates

that they not be included as “amounts previously assessed * * * as a deficiency”

for purposes of that section.

      Furthermore, the legislative history of section 6201(a)(4) follows this

reasoning. Specifically, the legislative history states that section 6201(a)(4) will

allow the IRS “to assess and collect, in the same manner as delinquent taxes * * *,

mandatory orders of restitution”. 156 Cong. Rec. 12032 (2010) (emphasis added).

That being said, we believe the “as if such amount were such tax” language of

section 6201(a)(4) is significant and does not share the same meaning as “in the

same manner as taxes.” Instead, the “as if” language was intended to empower the

IRS to collect court-ordered restitution for criminal tax cases without following

regular deficiency procedures.
                                        - 16 -

[*16] The Joint Committee on Taxation’s general explanation, also known as the

Blue Book, provides some guidance on the question as well.7 See Staff of J.

Comm. on Taxation, General Explanation of Tax Legislation Enacted in the 111th

Congress, at 459-461 (J. Comm. Print 2011). The Joint Committee states that

although an “amount of restitution ordered is computed by reference to the taxes

that would have been owed but for the criminal offenses charged, restitution is not

itself a determination of tax within the meaning of the Code and does not provide

a basis on which tax may be assessed.” Id. at 461. Thus, a taxpayer’s tax liability

is assessed separately from restitution and in fact may exceed amounts of

restitution ordered for the year or years in question. See Morse v. Commissioner,

419 F.3d at 834; Gillum v. Commissioner, T.C. Memo. 2010-280, aff’d, 676 F.3d

633 (8th Cir. 2012). This comports with the purpose of the statute, which is not

intended to be a radical departure from the way restitution was previously

collected for criminal tax cases for failure to pay tax imposed under title 26. See

H.R. 5552, 111th Cong., Preamble (2010) (“to provide for the assessment by the

Secretary of the Treasury of certain criminal restitution”). Rather, the statute is

intended to enhance the IRS’ and the Treasury Department’s collection

      7
        We note that the Blue Books are not legislative history, though they can
sometimes be relevant if persuasive. United States v. Woods, 571 U.S. __, __, 134
S. Ct. 557, 568 (2013).
                                        - 17 -

[*17] capabilities when restitution is ordered. 156 Cong. Rec. 12031 (“The bill

would also allow the IRS to collect restitution debt that has been court ordered to

be paid in criminal tax cases.”). Before the enactment of the statute, collection

responsibilities were shared among the District Court that ordered restitution, the

Financial Litigation Unit of the local U.S. Attorney’s Office, and the Service. See

Staff of J. Comm. on Taxation, supra, at 460. Now, in addition to that collection

mechanism, the statute allows the Service to immediately assess the restitution

without issuing a statutory notice of deficiency and collect (as if it were a tax) the

court-ordered restitution. See secs. 6201(a)(4), 6213(b)(5).

      Petitioner was ordered to pay restitution for failure to pay tax imposed under

title 26 for tax years 2003 through 2005. Because the order was entered after

August 16, 2010, section 6201(a)(4) applies. Firearms Excise Tax Improvement

Act of 2010, Pub. L. No. 111-237, sec. 3(c), 124 Stat. at 2498. Although

respondent assessed the restitution before our decision--that is, the restitution was

“previously assessed”, respondent did not assess the restitution “as a deficiency”.8

Instead, the restitution was summarily assessed. Therefore, we conclude and hold

that petitioner’s criminal plea agreement and judgment ordering restitution did not


      8
      Even if we were to assume arguendo that the restitution had been collected
without assessment, it would not have been collected “as a deficiency”.
                                        - 18 -

[*18] discharge, and do not reduce, petitioner’s deficiencies for tax years 2003

through 2005. We sustain respondent’s deficiency determinations on the notice of

deficiency for tax years 2000 through 2002 and sustain the increased deficiencies

asserted in respondent’s amendment to answer for tax years 2003 through 2005.

II.   Additions to Tax and Penalty

      Petitioner asserts that the doctrines of res judicata and collateral estoppel

preclude respondent from seeking civil fraud additions to tax.9 For the reasons

described above, we conclude that those doctrines do not apply. See also Morse v.

Commissioner, 419 F.3d at 834 (“[T]he government does not surrender its right to

seek civil fraud penalties by undertaking a criminal tax prosecution.”). Therefore,

we review respondent’s determination that petitioner is liable for additions to tax

for tax years 2000 through 2005.




      9
        Petitioner also contends in his petition that the Double Jeopardy Clause of
the Fifth Amendment of the U.S. Constitution bars the Commissioner from
imposing civil fraud penalties and additions to tax in the notice of deficiency. We
note that the double jeopardy clause “protects only against the imposition of
multiple criminal punishments for the same offense.” Hudson v. United States,
522 U.S. 93, 99 (1997) (emphasis added). Furthermore, the civil tax penalty for
fraud is not a punishment for purposes of the Double Jeopardy Clause of the Fifth
Amendment. Helvering v. Mitchell, 303 U.S. at 398; Morse v. Commissioner,
T.C. Memo. 2003-332, aff’d, 419 F.3d 829 (8th Cir. 2005); Roberts v.
Commissioner, T.C. Memo. 1997-216.
                                         - 19 -

[*19] A.     Fraudulent Failure To File a Tax Return

      The addition to tax in cases of fraud is a civil sanction provided primarily as

a safeguard for the protection of revenue and to reimburse the Government for the

heavy expense of investigation and loss resulting from the taxpayer’s fraud.

Helvering v. Mitchell, 303 U.S. 391, 401 (1938); see also Price v. Commissioner,

T.C. Memo. 1996-204. To sustain the 75% addition to tax provided by section

6651(f), respondent has the burden of proving by clear and convincing evidence

that petitioner underpaid his income tax and that some part of the underpayment

was due to fraud. See sec. 7454(a); Rule 142(b); see also Clayton v.

Commissioner, 102 T.C. 632, 646 (1994); Jones v. Commissioner, T.C. Memo.

2014-101; Good v. Commissioner, T.C. Memo. 2012-323.

      In applying the addition to tax under section 6651(f), we consider the same

elements, or long-recognized “badges of fraud”, discussed in cases applying

section 6663 or former section 6653(b)(1). Clayton v. Commissioner, 102 T.C. at

647-653; see Niedringhaus v. Commissioner, 99 T.C. 202, 211-213 (1992). Fraud

may be proved by circumstantial evidence, and the taxpayer’s entire course of

conduct may establish the requisite fraudulent intent. Rowlee v. Commissioner,

80 T.C. 1111, 1123 (1983). Circumstantial evidence of fraud present here

includes the pattern of failure to file returns, failure to report substantial amounts
                                        - 20 -

[*20] of income, concealing assets, engaging in illegal activities, failure to

cooperate with the taxing authorities in determining petitioner’s correct liability,

and failure to make estimated tax payments. See, e.g., Bradford v. Commissioner,

796 F.2d 303, 307-308 (9th Cir. 1986), aff’g T.C. Memo. 1984-601; Powell v.

Granquist, 252 F.2d 56, 60-61 (9th Cir. 1958); Clayton v. Commissioner, 102 T.C.

at 647; Grosshandler v. Commissioner, 75 T.C. 1, 19-20 (1980); Gajewski v.

Commissioner, 67 T.C. 181, 199-202 (1976), aff’d without published opinion, 578

F.2d 1383 (8th Cir. 1978).

      Respondent contends, first, that petitioner is estopped to deny fraud for tax

year 2004 by his guilty plea to a violation of section 7201. A conviction for

Federal income tax evasion, either upon a plea of guilty, or upon a jury verdict of

guilt, conclusively establishes fraud in a subsequent civil tax fraud proceeding

through application of the doctrine of collateral estoppel. Weber v.

Commissioner, T.C. Memo. 1995-125. Petitioner was convicted of criminal tax

evasion under section 7201 pursuant to a plea agreement in the District Court in

which he pleaded guilty to one count of tax evasion for the 2004 taxable year.

Because the conviction required showing that petitioner willfully attempted to

evade tax, petitioner is collaterally estopped from contesting that he is liable for

the addition to tax for fraud with respect to the 2004 taxable year. See DiLeo v.
                                        - 21 -

[*21] Commissioner, 96 T.C. 858, 885 (1991), aff’d, 959 F.2d 16 (2d Cir. 1992).

We therefore hold that petitioner is liable for the fraud addition to tax for the 2004

tax year.

      Petitioner did not file returns for any of the years in issue, and he did not

dispute any of the facts establishing his receipt of substantial taxable income

during the years in issue. Petitioner engaged in a complex scheme to conceal his

income and assets during the years in issue. He was convicted of engaging in that

conduct in order to defeat the payment of taxes due for 2004, and the obvious

purpose of engaging in the scheme was to evade taxes for the previous years (and

subsequent year) as well. The objective facts are clear and convincing evidence of

fraud sufficient to satisfy respondent’s burden of proof. The additions to tax for

fraud have frequently been imposed on taxpayers like petitioner “who were

knowledgeable about their taxpaying responsibilities * * * [and] consciously

decided to unilaterally opt out of our system of taxation.” Miller v.

Commissioner, 94 T.C. 316, 335 (1990) (citing numerous relevant cases); see

Niedringhaus v. Commissioner, 99 T.C. at 212-213. Accordingly, we hold that

petitioner is liable for the additions to tax under section 6651(f) and sustain

respondent’s determinations as set forth in the notice of deficiency.
                                        - 22 -

[*22] B.     Failure To Pay Tax

      Section 6651(a)(2) provides for an addition to tax when a taxpayer fails to

timely pay the tax shown on a return unless the taxpayer proves that the failure

was due to reasonable cause and not due to willful neglect. Respondent has

satisfied his burden of production with respect to the additions to tax under section

6651(a)(2). See sec. 7491(c). Respondent prepared SFRs in accordance with

section 6020(b) for all of the years at issue, and petitioner did not pay the amounts

shown as due. See sec. 6651(g); Cabirac v. Commissioner, 120 T.C. 163, 170-173

(2003). As a result, respondent’s burden of producing evidence that supports an

addition to tax for failure to timely pay tax due under section 6651(a)(2) is

satisfied. Petitioner has not offered any arguments alleging reasonable cause for

failure to pay the amounts shown as due on the substitute returns and so is liable

for the addition to tax under section 6651(a)(2) for each of the years at issue.

      C.     Failure To Pay Estimated Tax

      Respondent determined that petitioner is liable for additions to tax under

section 6654. Section 6654(a) and (b) provides for an addition to tax in the event

of a taxpayer’s underpayment of a required installment of estimated tax. As it

relates to this case, each required installment of estimated tax is equal to 25% of

the “required annual payment”, which in turn is equal to the lesser of (1) 90% of
                                         - 23 -

[*23] the tax shown on the taxpayer’s return for that year (or, if no return is filed,

90% of his or her tax for such year) or (2) 100% of the tax shown on the

taxpayer’s return for the immediately preceding taxable year. Sec. 6654(d)(1)(A)

and (B).

      The Commissioner’s burden of production under section 7491(c) requires

him to produce, for each year for which the addition is asserted, evidence that the

taxpayer had a “required annual payment” under section 6654(d). To do so, the

Commissioner must establish the tax shown on the taxpayer’s return for the

preceding year or demonstrate that the taxpayer filed no such return. See Wheeler

v. Commissioner, 127 T.C. 200, 212 (2006), aff’d, 521 F.3d 1289 (10th Cir.

2008); Schlussel v. Commissioner, T.C. Memo. 2013-185.

      Respondent introduced evidence to prove that petitioner was required to file

Federal income tax returns for 2000 through 2005, that petitioner did not file

returns for 2000 through 2005, and that petitioner did not make estimated tax

payments for 2000 through 2005. However, respondent did not introduce

evidence sufficient to prove that petitioner had an obligation to make any

estimated tax payments for 2000. See Wheeler v. Commissioner, 127 T.C. at 211.

Respondent was required to produce sufficient evidence that petitioner had a
                                         - 24 -

[*24] required annual payment for 2000 under section 6654(d), and respondent

failed to do so.

      Instead, respondent produced evidence establishing that petitioner did not

file a return for 2000 and that petitioner had an income tax liability for that year.

This evidence was sufficient to permit the Court to make the analysis required by

section 6654(d)(1)(B)(i). However, in order to permit the Court to make the

analysis required by section 6654(d)(1)(B)(ii) and to conclude that respondent had

met his burden of producing evidence that petitioner had a required annual

payment for 2000 payable in installments under section 6654, respondent also had

to introduce evidence showing whether petitioner had filed a return for the

preceding taxable year and, if he did, the amount of tax shown on that return.

Respondent did not do so. Without that evidence, we cannot identify the number

equal to 100% of the tax shown on petitioner’s 1999 return, we cannot complete

the comparison required by section 6654(d)(1)(B), and we cannot conclude that

petitioner had a required annual payment for 2000 that was payable in installments

under section 6654. Consequently, respondent’s determination regarding the

section 6654 addition to tax for the 2000 tax year is not sustained.

      Petitioner did not file returns for tax years 2001 through 2005; he did not

file returns for the years immediately preceding these years; and he did not pay
                                        - 25 -

[*25] estimated tax in these years. There are exceptions to the obligation to make

estimated tax payments set forth in section 6654, but petitioner has not shown that

he meets the criteria for those exceptions. See sec. 6654(e); McLaine v.

Commissioner, 138 T.C. 228, 249 (2012) (“The burden of proof is on petitioner to

show that he is covered by one of the relief provisions of section 6654[.]”).

Therefore, petitioner is liable for the addition to tax under section 6654 for tax

years 2001 through 2005 calculated with respect to the required annual payment--

90% of the tax due for those years.

      D.     Section 6673 Penalty for Frivolous Arguments

      The Court may penalize a taxpayer if the taxpayer institutes or maintains

proceedings primarily for delay or if the taxpayer’s position is frivolous or

groundless. Sec. 6673(a)(1). In this case the Court will not grant sanctions. This

is not because the facts and law do not support the sanctions. Rather, the Court

chooses to give petitioner a warning before imposing sanctions. While the record

supports such sanctions, the Court is circumspect about imposing them without a

proper warning to parties. Now that such a warning has been issued, the Court

expects that petitioner will not continue to make frivolous arguments in this or

other Tax Court proceedings or relitigate a settled case.
                                       - 26 -

[*26] In reaching our decision, we have considered all arguments made by the

parties, and to the extent not mentioned or addressed, they are irrelevant or

without merit.

      To reflect the foregoing,


                                                An appropriate decision will be

                                       entered.
