                         T.C. Memo. 1996-99



                       UNITED STATES TAX COURT



         S. PAUL AND PATRICIA J. DUBOSE, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 10831-94.           Filed March 5, 1996.



     Leslie L. McCollom (specially recognized), for petitioner

Patricia J. Dubose.

     S. Paul Dubose, pro se.

     Franklin R. Hise, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION

     COHEN, Judge:    Respondent determined deficiencies, additions

to tax, and penalties with respect to petitioners’ Federal income

taxes as follows:
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                                 Additions to Tax and Penalties, I.R.C.

                      Sec. 6653(b)(1) or
Year    Deficiency    Sec. 6653(b)(1)(A)    Sec. 6653(b)(1)(B)      Sec. 6663(a)
                                                       1
1986     $ 59,557          $ 39,320                                      --
                                                       1
1987      228,770           168,588                                      --
1988       18,118            11,724                   --                 --
1989       23,688             --                      --              $15,733
1990       14,834             --                      --               11,126
__________________________
   1
      50% of the interest due on the portion of the   underpayment that is
attributable to fraud.


Unless otherwise indicated, all section references are to the

Internal Revenue Code in effect for the years in issue, and all

Rule references are to the Tax Court Rules of Practice and

Procedure.    Prior to trial, petitioner Patricia J. Dubose

(Mrs. Dubose) and respondent entered into an agreement in which

Mrs. Dubose conceded the deficiencies determined by respondent

and respondent conceded that Mrs. Dubose is not liable for the

additions to tax or penalties for fraud.          S. Paul Dubose

(petitioner) failed to appear for trial, and respondent orally

moved to dismiss his petition for lack of prosecution as to those

issues upon which petitioner has the burden of proof.               Respondent

proceeded to present evidence that the deficiencies for the years

in issue are due to fraud on the part of petitioner.

                             FINDINGS OF FACT

       Petitioners resided in Blanco, Texas, at the time that they

filed their petition.      Petitioners were married and filed joint

Federal income tax returns for each of the years in issue.
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     Petitioner was born in 1930.   He received a bachelor of

science degree in economics.   In or about 1977, petitioner and

John P. Stern (Stern) commenced a wood floor manufacturing and

distribution company known as Kentucky Wood Floors, Inc.

(Kentucky Wood).   Each invested $31,000 and received 31,000

shares of stock.   Mrs. Dubose subsequently received stock in

Kentucky Wood.   During 1981, a partnership known as Kywood

Investments, Ltd. (Kywood), was formed among petitioners, Stern,

and other investors to purchase the building that housed Kentucky

Wood.   Mrs. Dubose held her partnership interest in her name.

Petitioner’s partnership interest in Kywood was held through a

corporation known as Dubose Properties, Inc., d/b/a International

Telecommunications (the corporation).   The corporation had no

assets other than its partnership units in Kywood.

     In 1986 and 1987, Kentucky Wood repurchased the stock and

partnership interests owned by petitioners and by the

corporation.   As a result of this sale of their interests,

petitioners received net capital gains in 1986, 1987, and 1988 in

the amounts of $124,599, $503,684, and $560, respectively.

Petitioners reported only $15,498.38 in 1986 and $181.26 in 1987

from the sale of their interests in these entities.   Petitioners

also received interest and/or dividend income of $1,016 in 1986,

$226,851 in 1987, $60,934 in 1988, $77,243 in 1989, and $53,097

in 1990, which was not reported on their returns for those years.
                                 - 4 -


     On September 26, 1986, Kentucky Wood issued a check payable

to petitioner in the amount of $47,880 for the purchase of 2,000

shares of petitioner’s stock in Kentucky Wood.       Petitioner

returned the check to Stern and requested that the check be

reissued and made payable to the Church of the New Age.

Petitioner also instructed Stern to make all subsequent payments

for the purchase of petitioner’s stock payable to the Church of

the New Age.

     On December 8, 1986, petitioner directed B.F. Pitman III

(Pitman) to open a bank account in the name of the Church of the

New Age.   Pitman was a member of the board of directors of a bank

in San Antonio, Texas, where the account was opened.       Pitman had

sole signature authority on the account, but thereafter Pitman

made deposits, withdrew funds, and handled mail in the name of

the Church of the New Age solely at the direction of petitioner.

     The following payments for petitioner’s stock in Kentucky

Wood were deposited into the account in the name of the Church of

the New Age:

               Date of Payment              Amount

               Dec. 1, 1986              $ 47,880.00
               Dec. 1, 1986               236,886.30
               Sept. 25, 1987             450,618.30

Also on September 25, 1987, a check was issued by Kentucky Wood

to “Church of the New Age and International Telecommunications”
                               - 5 -


in payment of the corporation’s interest in Kywood.   That check

was also deposited into the account of the Church of the New Age.

     On September 25, 1987, Kentucky Wood issued a check payable

to Mrs. Dubose in the amount of $61,319.61 as payment for 2,693

shares of her stock in Kentucky Wood.   On October 29, 1987, at

petitioner’s direction, that check was deposited into a new

interest-bearing checking account in the name of Earth Harmony

Church.   Also on September 25, 1987, a check in the amount of

$17,773.80 was issued by Kentucky Wood to Mrs. Dubose in payment

of her remaining partnership interest in Kywood.   This check was

also deposited into the Earth Harmony Church account.

     On April 22, 1988, petitioners opened a checking account in

the name of the Church of the Golden Rule.   In 1988 and 1989,

petitioners transferred $275,000 from the bank account of the

Church of the New Age to the bank account of the Church of the

Golden Rule.   Petitioners had signature authority on the Church

of the Golden Rule account and used the funds in that account to

make personal investments and to pay personal expenses.

     Petitioner’s purpose in depositing funds into bank accounts

in the name of the Church of the New Age, the Earth Harmony

Church, and the Church of the Golden Rule was to avoid income tax

on the sale of petitioners’ interests in Kentucky Wood

and in Kywood and to avoid paying tax on income earned on the

proceeds of sale.   To further that purpose, petitioner made
                               - 6 -


misrepresentations concerning his income and assets to his tax

return preparers and to Internal Revenue Service (IRS) agents who

subsequently examined petitioners’ tax returns.    Petitioner

failed to file corporate returns reflecting gains from sale of

the corporation’s interest in Kywood.    On September 13, 1993,

petitioner entered a plea of guilty, and, on September 17, 1993,

he was adjudged guilty of violation of section 7201, tax evasion,

for his taxable year 1989.

                              OPINION

     When the case was called for trial, respondent moved the

Court to dismiss for lack of prosecution those issues upon which

petitioner has the burden of proof and to sustain the

deficiencies determined by respondent.    Those deficiencies

resulted from the unreported income described above that is the

basis for respondent’s determination of fraud, as well as

disallowed farm losses and other adjustments.    Petitioner has the

burden of proving entitlement to the disallowed deductions and

that the determinations by respondent, other than the

determinations of additions to tax and penalties for fraud, are

erroneous.   Rule 142(a); INDOPCO, Inc. v. Commissioner, 503 U.S.

79, 84 (1992); Welch v. Helvering, 290 U.S. 111 (1933); New

Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934).       By

reason of his failure to appear for trial, to present evidence on

those issues, or otherwise properly to prosecute this case, those
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issues will be decided against petitioner.    Rules 123(a) and (b),

142(a), 149.

     Respondent, however, bears the burden of proving fraud by

clear and convincing evidence.    Sec. 7454(a); Rule 142(b).   In

this regard, respondent presented evidence that petitioner had

unreported income for each of the years in issue.    In the course

of presenting that evidence, respondent also satisfied the burden

that is sometimes associated with determinations of unreported

income.   See Portillo v. Commissioner, 932 F.2d 1128, 1133 (5th

Cir. 1991).

     The addition to tax for fraud is a civil sanction intended

to safeguard the revenue and to reimburse the Government for the

heavy expense of investigation and for the loss resulting from a

taxpayer’s fraud.   Helvering v. Mitchell, 303 U.S. 391, 401

(1938).   Respondent has the burden of proving, by clear and

convincing evidence, an underpayment for each year and that some

part of the underpayment was due to fraud.    If respondent

establishes that any portion of the underpayment is attributable

to fraud, the entire underpayment is treated as attributable to

fraud and subjected to a 75-percent addition to tax or penalty,

unless the taxpayer establishes that some part of the

underpayment is not attributable to fraud.    See sec. 6653(b)(2)

for 1986, 1987, and 1988, and sec. 6663(b) for 1989 and 1990.
                                - 8 -


     Respondent’s burden with respect to fraudulent intent is met

if it is shown that the taxpayer intended to conceal, mislead, or

otherwise prevent the collection of taxes owing.   See, e.g., Webb

v. Commissioner, 394 F.2d 366, 377 (5th Cir. 1968), affg. T.C.

Memo. 1966-81.   Fraud may be proved by circumstantial evidence

because direct proof of the taxpayer’s intent is rarely

available.    The taxpayer’s entire course of conduct may establish

the requisite fraudulent intent.    Stone v. Commissioner, 56 T.C.

213, 223-224 (1971); Otsuki v. Commissioner, 53 T.C. 96, 105-106

(1969).   Fraudulent intent may be inferred from various “badges

of fraud”, including understatement of income, implausible or

inconsistent explanations of behavior, concealing assets, and

failure to cooperate with tax authorities.   See Bradford v.

Commissioner, 796 F.2d 303, 307 (9th Cir. 1986); Webb v.

Commissioner, supra at 379; Marcus v. Commissioner, 70 T.C. 562,

577 (1978), affd. without published opinion 621 F.2d 439 (5th

Cir. 1980).   A taxpayer’s education may be considered in

determining whether or not he had fraudulent intent.   See, e.g.,

Scallen v. Commissioner, 877 F.2d 1364, 1370-1371 (8th Cir.

1989), affg. T.C. Memo. 1987-412.

     In this case, respondent has presented clear and convincing

evidence that petitioner had taxable income for each of the years

in issue and that he failed to report substantial amounts of that

income on his returns.   There is evidence, and we have found,
                               - 9 -


that petitioner concealed income and assets from his tax return

preparers and that he made false and misleading statements to IRS

agents investigating his tax liability.   Petitioner’s failure to

come forward with any nonfraudulent explanation negating the

evidence against him justifies the inference that there is no

such explanation.   Brooks v. Commissioner, 82 T.C. 413, 432-433

(1984), affd. without published opinion 772 F.2d 910 (9th Cir.

1985).   We have found that petitioner’s purpose in placing funds

in church accounts was to avoid paying income tax due on the

proceeds of sale of his stock in Kentucky Wood and the sale of

the corporation’s partnership interest in Kywood.   We are

convinced by the evidence that petitioner knew that he could not

avoid taxation merely by placing funds in the names of churches

that he created for that purpose.   His attempts to do so

establish fraudulent intent.   See Stephenson v. Commissioner, 79

T.C. 995, 1006 (1982), affd. 748 F.2d 331 (6th Cir. 1984).     In

any event, for 1989, petitioner is estopped by his criminal

conviction from denying that the underpayment for that year is

due to fraud.   Amos v. Commissioner, 360 F.2d 358 (4th Cir.

1965), affg. 43 T.C. 50 (1964); see Tomlinson v. Lefkowitz, 334

F.2d 262 (5th Cir. 1964).

     Upon review of the entire record, we conclude that

respondent has satisfied her burden of proving that petitioner

underpaid his taxes for each of the years in issue and that the
                              - 10 -


underpayments attributable to unreported income were due to

fraud.   Petitioner has not proven that any part of any

underpayment is not attributable to fraud.   To reflect the

foregoing,

                                    Respondent’s motion to dismiss

                               for lack of prosecution as to

                               petitioner S. Paul Dubose will be

                               granted and decision will be

                               entered for respondent and against

                               petitioner S. Paul Dubose, and

                               decision will be entered only for

                               the deficiencies as to petitioner

                               Patricia S. Dubose.
