                         T.C. Memo. 2008-218



                       UNITED STATES TAX COURT



               DAIVID NORMAN GROSS, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 20082-05.              Filed September 25, 2008.



     Daivid Norman Gross, pro se.

     Beth Nunnink, for respondent.



                         MEMORANDUM OPINION


     GALE, Judge: This case is before the Court on respondent’s

motion to dismiss for lack of prosecution, for default judgment,

and for entry of decision.   As discussed below, we shall grant

respondent’s motion.   Unless otherwise noted, all section

references are to the Internal Revenue Code of 1986 as in effect

for the years in issue, all Rule references are to the Tax Court
                                 - 2 -

Rules of Practice and Procedure, and all dollar amounts have been

rounded to the nearest dollar.

                              Background

     Petitioner did not file Federal income tax returns for 2001

and 2002.    Respondent prepared substitutes for return for both

years and issued a notice of deficiency, determining the

following deficiencies, additions to tax, and penalties with

respect to petitioner’s income tax:

                                      Additions to Tax
  Year      Deficiency   Sec. 6651(a)(2)  Sec. 6651(f)1    Sec. 6654

  2001       $20,301         $3,857            $14,718        $811
  2002        33,323          1,114             24,159       4,332
     1
      In the alternative, respondent asserts additions under sec.
6651(a)(1) if the Court determines petitioner is not liable for
the additions to tax under sec. 6651(f).

     Petitioner filed a timely petition with respect to the

notice of deficiency.     He resided in Tennessee when he did so,

and he listed a Tennessee address (Tennessee address).

Petitioner designated Nashville, Tennessee, as the place of

trial.

     On December 27, 2005, respondent filed an answer which made

specific affirmative allegations in support of establishing the

additions to tax under section 6651(f) for fraudulent failure to

file returns for 2001 and 2002.       The answer was served on

petitioner at the Tennessee address.
                               - 3 -

     On March 17, 2006, respondent filed a motion for entry of an

order that undenied allegations in respondent’s answer be deemed

admitted under Rule 37(c).   On March 23, 2006, petitioner sent a

letter to the Court requesting that his address be changed to an

address in Florida (Florida address).    Petitioner’s address was

changed by order dated April 11, 2006, which was served on

petitioner by certified mail at the Florida address.   After the

Court granted a further extension by order dated May 8, 2006,

served on petitioner by certified mail at the Florida address,

petitioner filed a reply on May 22, 2006.   The Court thereupon

denied respondent’s Rule 37(c) motion.

     Petitioner’s reply addressed the allegations in respondent’s

answer and also specifically referred to extensions of time to

file the reply, notice of which had been served on petitioner by

certified mail at the Florida address.

     On November 24, 2006, respondent served requests for

admission on petitioner by first class mail at the Florida

address.   Petitioner did not respond to the requests for

admission, nor were they returned to respondent as

undeliverable.1

     On December 12, 2007, the Court served upon petitioner by

certified mail at the Florida address a notice setting case for


     1
      The record establishes that petitioner was receiving mail
from respondent at the Florida address from early August 2006
through late December 2006. See infra n.2.
                               - 4 -

trial and a standing pretrial order, which advised that the trial

in petitioner’s case was set for May 5, 2008, in Nashville,

Tennessee.   The notice setting case for trial stated in part:

     YOUR FAILURE TO APPEAR MAY RESULT IN DISMISSAL OF THE CASE
     AND ENTRY OF DECISION AGAINST YOU.

          Your attention is called to the Court’s requirement
     that * * * the parties must agree in writing to all facts
     and all documents about which there should be no
     disagreement. Therefore, the parties should contact each
     other promptly and cooperate fully * * *. YOUR FAILURE TO
     COOPERATE MAY ALSO RESULT IN DISMISSAL OF THE CASE AND ENTRY
     OF DECISION AGAINST YOU.

The envelope containing the notice setting case for trial and the

standing pretrial order was returned unclaimed.

     Respondent subsequently filed motions to compel discovery

under Rules 71(c) and 72(b), and the Court ordered petitioner to

comply.2   That order was served on petitioner by certified mail

at the Florida address on March 11, 2008.    The order was returned

unclaimed, and petitioner did not respond.    A subsequent order

imposing sanctions on petitioner for his failure to respond,

served on petitioner by certified mail at the Florida address on

April 8, 2008, was also returned unclaimed.    Thereafter, the

Court served another copy of the sanctions order on petitioner by

first class mail at the Florida address.    That copy was returned;



     2
      Respondent’s motions to compel included letters from
petitioner responding to respondent’s informal and formal
discovery requests, with dates from early August 2006 through
late December 2006, demonstrating that petitioner was receiving
respondent’s mailings at the Florida address during this period.
                               - 5 -

on the mailing envelope, the address had been blacked out and a

notation by the United States Postal Service added, stating:

“RETURN TO SENDER This mail cannot be corrected because the

original address was covered by customer”.

     On May 1, 2008, 4 days before the trial date, the Court

received a letter from petitioner, which was filed as

petitioner’s motion to dismiss.    Therein, petitioner stated that

he was responding to the Court’s notice setting case for trial.3

However, the letter also claimed that petitioner had not received

any correspondence from the Court since he filed his reply, which

had occurred some 19 months before the notice setting case for

trial was sent to him by certified mail.     Petitioner also denied

having ever initiated this proceeding and urged the Court “to

bring to an end all of these proceedings as they are frivolous

and quite pointless.”   Petitioner further asserted that he had

moved to Canada on November 19, 2007, and that an “immigration

issue” prevented him from returning to the United States.

Finally, petitioner did not include a return address on the

letter or the envelope in which it was mailed and requested that

the Court contact him by e-mail.




     3
      As noted, the notice setting case for trial that was served
on petitioner at the Florida address was returned unclaimed. The
record does not indicate how petitioner received a copy of that
notice.
                                 - 6 -

     When this case was called for trial in Nashville, Tennessee,

on May 5, 2008, there was no appearance by or on behalf of

petitioner.   Counsel for respondent appeared and filed a motion

to dismiss for lack of prosecution, for default judgment, and for

entry of decision (respondent’s motion).      In a May 29, 2008,

order served on petitioner by certified mail at the Florida

address, the Court directed petitioner to respond to respondent’s

motion.4   The order was returned unclaimed, and petitioner has

not responded.

                              Discussion

Petitioner’s Motion To Dismiss

     Petitioner’s motion to dismiss asserts simply that these

proceedings are frivolous and offers no other reason why this

case should be dismissed.     Respondent issued a notice of

deficiency to petitioner with respect to petitioner<s 2001 and

2002 taxable years, and petitioner timely petitioned the Court.

Thus, we have jurisdiction.    See secs. 6212 and 6213; Monge v.

Commissioner, 93 T.C. 22, 27 (1989).       “‘[A] taxpayer may not

unilaterally oust the Tax Court from jurisdiction which, once

invoked, remains unimpaired until it decides the controversy.’”



     4
      We note that at that time there was no provision in the
Rules allowing service of orders by electronic means. Rule
21(b)(1) required service of orders by mail to the party’s last
known address or by (personal) delivery to a party. Rule
21(b)(4) required a party to promptly notify the Court of any
change of address.
                                 - 7 -

Estate of Ming v. Commissioner, 62 T.C. 519, 521 (1974) (quoting

Dorl v. Commissioner, 57 T.C. 720, 722 (1972), affd. 507 F.2d 406

(2d Cir. 1974)).   Accordingly, we shall deny petitioner’s motion

to dismiss.

Respondent’s Motion To Dismiss

     Respondent requests that we dismiss this case for lack of

prosecution under Rule 123(b) and hold petitioner in default

under Rule 123(a) with respect to the addition to tax for

fraudulent failure to file under section 6651(f).

Dismissal for Lack of Prosecution

     The Court may dismiss a case at any time and enter a

decision against the taxpayer for failure properly to prosecute

his case, failure to comply with the Rules of this Court or any

order of the Court, or for any cause which the Court deems

sufficient.    Rule 123(b); Edelson v. Commissioner, 829 F.2d 828,

831 (9th Cir. 1987), affg. T.C. Memo. 1986-223; McCoy v.

Commissioner, 696 F.2d 1234, 1236 (9th Cir. 1983), affg. 76 T.C.

1027 (1981).   The Court may dismiss a case for lack of

prosecution if the taxpayer inexcusably fails to appear at trial

and does not otherwise participate in the resolution of his

claim.   Rule 149(a); Brooks v. Commissioner, 82 T.C. 413 (1984),

affd. without published opinion 772 F.2d 910 (9th Cir. 1985).

     Petitioner has failed to prosecute this case properly.

Petitioner’s failure to appear for trial is unexcused.    His
                               - 8 -

motion to dismiss, received 4 days before the trial, demonstrates

that petitioner was aware of the trial date and the contents of

the notice setting case for trial, which warned of dismissal and

entry of an adverse decision in the event of a failure to appear.

The statements petitioner made in his motion to dismiss,

especially those directed at creating the impression that he was

unaware of the Court’s efforts to contact him concerning these

proceedings, are unworthy of belief.   In his motion, petitioner

states both that he was responding to the notice setting case for

trial and that he had received nothing from the Court since the

filing of his reply (which occurred some 19 months before the

trial notice was issued).   These statements are inconsistent.

Petitioner’s assertion in the motion that he did not initiate

this lawsuit is incredible; his petition and designation of trial

location are in the record.   The circumstances under which the

Court’s sanctions order, sent to petitioner by first class mail,

was returned with the address blacked out by the postal customer

(according to the U.S. Postal Service) invite strong suspicion

that petitioner was deliberately refusing delivery of the Court’s

mailings.   Even if one accepted as true petitioner’s claim that

he moved to Canada on November 19, 2007, and was prevented by an

“immigration issue” from returning to the United States,

petitioner had ample time to seek a continuance.   Instead, on the

eve of trial he sent a letter urging that the proceedings be
                                - 9 -

terminated.    Consequently, we are satisfied that petitioner is

merely attempting to forestall the day of reckoning regarding his

tax liabilities and alleged fraud.      Finally, petitioner was aware

of the directive in the notice setting case for trial that he

cooperate with respondent in the stipulation process.

Petitioner’s correspondence replying to respondent’s informal and

formal discovery requests demonstrates that he was aware of

respondent’s discovery efforts.    However, petitioner did not

cooperate in the stipulation or discovery process.

     The foregoing provides ample grounds for granting

respondent’s motion to dismiss for lack of prosecution.

Accordingly, we shall grant respondent’s motion as more fully

described below.

Deficiencies

     All of the material allegations set forth in the petition in

support of the assignments of error have been denied in

respondent’s answer.    Petitioner has not claimed, or shown

eligibility for, any shift in the burden of proof.5     Accordingly,

the burden of proof rests with petitioner concerning any error in


     5
      Any burden that respondent may bear to show a minimum
evidentiary foundation for petitioner’s receipt of income in 2001
and 2002, see e.g. United States v. Walton, 909 F.2d 915, 919
(6th Cir. 1990), has been satisfied by petitioner’s deemed
admissions. Under Rule 90(c), petitioner’s failure to respond to
respondent’s requests for admission resulted in petitioner’s
being deemed to have admitted that he lived in the United States
for more than 183 days in 2001 and 2002 and had income of at
least $63,660 and $96,293, respectively, in those years.
                              - 10 -

the deficiency determination, and petitioner has adduced no

evidence in support of the assignments of error in the petition.

We shall therefore sustain respondent’s determinations of the

deficiencies for 2001 and 2002.

Additions to Tax Under Sections 6651(a)(2) and 6654(a)

     Pursuant to section 7491(c), the burden of production is on

respondent with respect to the additions to tax determined under

sections 6651(a)(2) and 6654(a).6   See Higbee v. Commissioner,

116 T.C. 438, 446 (2001).   Respondent offers certified copies of

substitutes for return he prepared for petitioner for 2001 and

2002 and deemed admissions to meet his burden of production.

     On November 27, 2006, respondent served requests for

admission by first class mail on petitioner at the Florida

address.   This mailing was not returned.   Petitioner claims in

his motion to dismiss that he received nothing from the Court

after he filed his reply on May 22, 2006.    Notably, petitioner

does not make the same claim with respect to mailings from

respondent.   Most significantly, respondent served other

discovery requests on petitioner by mail at the Florida address

only 3 days before serving the requests for admission at that

address.   The record contains letters petitioner sent respondent


     6
      Respondent would also bear the burden of production on his
alternative position that petitioner is liable for additions to
tax under sec. 6651(a)(1). However, because we conclude, infra,
that the fraud additions under sec. 6651(f) should be sustained,
we need not address sec. 6651(a)(1).
                              - 11 -

in response to those discovery requests, which demonstrate that

petitioner received them.   We have no difficulty concluding that

petitioner received service of the requests for admission.     His

failure to respond to them therefore results in each matter

therein being deemed admitted under Rule 90(c).

     The certified copies of substitutes for return for 2001 and

20027 show liabilities of $20,301 and $33,143, respectively.    The

deemed admissions establish that petitioner made no payments of

tax or estimated tax and had no tax withheld for either year.

Thus, respondent has met his burden of production with respect to

the additions to tax under section 6651(a)(2).

     Further, the deemed admissions establish that petitioner did

not file a return for the year preceding the years in issue.

Respondent’s substitutes for return establish that petitioner had

a required annual payment for 2001 and 2002.   See sec.

6654(d)(1)(B).   Thus, respondent has met his burden of production

with respect to the section 6654(a) addition as well.

     Petitioner has adduced no evidence in support of any

exculpatory factors.   See Higbee v. Commissioner, supra at 446-


     7
      The substitutes for return include Forms 1040, U.S.
Individual Income Tax Return, to which were attached Forms 4549,
Income Tax Examination Changes, Forms 886-A, Explanation of
Items, and a revenue agent’s certifications that these forms
constitute valid returns under sec. 6020(b). The substitutes for
return contain sufficient information from which to compute
petitioner’s tax liability and meet the requirements of sec.
6020(b). See Wheeler v. Commissioner, 127 T.C. 200, 209-210
(2006), affd. 521 F.3d 1289 (10th Cir. 2008).
                              - 12 -

447; see also Wheeler v. Commissioner, 127 T.C. 200, 206 (2006),

affd. 521 F.3d 1289 (10th Cir. 2008).   We accordingly shall

sustain respondent’s determinations of the additions to tax under

sections 6651(a)(2) and 6654(a) for 2001 and 2002.

Section 6651(f) Additions to Tax

     Respondent has moved for a default under Rule 123(a) with

respect to the additions to tax for fraudulent failure to file

under section 6651(f).   The Court may hold any party in default

and may enter a judgment against the defaulting party if that

party has failed to plead or otherwise proceed as provided by the

Court’s Rules or as required by the Court.   Rule 123(a).

     Sections 6011 and 6012 require every individual who has

gross income in excess of certain amounts for a taxable year to

file an income tax return.   Section 6651(a)(1) provides for an

addition to tax for failure to file a timely return, equal to 5

percent of the amount required to be shown as tax on the return,

for each month or fraction thereof during which such failure

continues, not exceeding 25 percent in the aggregate.

     If, however, the failure to file any return is fraudulent,

section 6651(f) imposes an increased addition to tax equal to 15

percent of the amount required to be shown as tax on the return

for each month or fraction thereof during which such failure

continues, not exceeding 75 percent in the aggregate (instead of

the 5 percent/maximum 25 percent addition under section
                              - 13 -

6651(a)(1)).   Respondent has determined that petitioner’s

failures to file for 2001 and 2002 were fraudulent.

     The Commissioner must prove fraud by clear and convincing

evidence.   See sec. 7454(a); Rule 142(b); Clayton v.

Commissioner, 102 T.C. 632, 646 (1994).   In determining whether

petitioner’s failure to file was fraudulent within the meaning of

section 6651(f), we consider the same elements that are relevant

in imposing the penalty for underpayment of tax due to fraud

under section 6663.   Clayton v. Commissioner, supra at 653; see

also Pappas v. Commissioner, T.C. Memo. 2002-127.

     Establishing fraud requires proof that the taxpayer “acted

with an intent to evade paying taxes”; this may be proved by

circumstantial evidence.   Douge v. Commissioner, 899 F.2d 164,

168 (2d Cir. 1990).

     A number of indicia, or “badges”, of fraud may give rise to

a finding of fraud.   Among these are (1) Failure to file tax

returns; (2) failure to report income over an extended period of

time; (3) failure to furnish the Commissioner with access to

records or to cooperate with taxing authorities; (4) failure to

keep adequate books and records; (5) the taxpayer’s experience

and knowledge, especially knowledge of tax laws; (6) concealment

of bank accounts or assets from Internal Revenue agents; (7) a

taxpayer’s willingness to defraud another in a business

transaction; (8) implausible or inconsistent explanations of
                              - 14 -

behavior; (9) failure to make estimated tax payments; and (10) a

pattern of behavior that indicates an intent to mislead.    Solomon

v. Commissioner, 732 F.2d 1459, 1461-1462 (6th Cir. 1984), affg.

T.C. Memo. 1982-603; Recklitis v. Commissioner, 91 T.C. 874, 910

(1988).

     The effect of a default is to establish the well-pleaded

facts of the nondefaulting party.    Smith v. Commissioner, 91 T.C.

1049, 1057 (1988), affd. 926 F.2d 1470 (6th Cir. 1991).    If we

enter a default judgment against petitioner with respect to the

additions to tax under section 6651(f), we must decide whether

respondent’s specific allegations of fact, taken to be true by

virtue of the default, are sufficient to establish petitioner’s

fraudulent failure to file by clear and convincing evidence.    See

id. at 1059.

     Petitioner “has failed to plead or otherwise proceed” within

the meaning of Rule 123(a).   He failed to participate in the

preparation of his case for trial, and he failed to appear for

trial without excuse.   Entering a default against petitioner with

respect to the additions to tax for fraudulent failure to file is

therefore “appropriate upon a determination in our ‘sound

judicial discretion’ that the pleadings set forth sufficient

facts to support such a judgment.”     Smith v. Commissioner, supra

at 1058-1059 (quoting Bosurgi v. Commissioner, 87 T.C. 1403, 1408

(1986)).
                               - 15 -

     Respondent’s specific allegations of fact, taken to be true

by petitioner’s default, establish the following.    Petitioner did

not file tax returns for the years at issue, and he has not filed

tax returns for any year since 1990.    During 1998 through 2002

petitioner received unreported taxable income from his business

activities, which included fraudulent investment schemes wherein

petitioner promoted, aided, and abetted other taxpayers in tax

evasion through the use of offshore bank and credit card

accounts.    Petitioner was sued civilly by certain investors in

respect to these schemes, and a judgment was entered against him

in the Sixth Judicial Circuit Court for Pinellas County, Florida.

Petitioner did not maintain adequate books and records, and he

failed to submit records of his income-producing activities to

respondent.    Petitioner’s failure to maintain records of his

income-producing activities was fraudulent with the intent to

evade tax.    Respondent determined petitioner’s income for 2001

and 2002 using the bank deposits method.    Petitioner made

extensive deposits to various bank accounts with a bank in the

Bahamas, with Toronto Dominion Bank, with Bank of America, and

with Southtrust Bank during 1998 through 2002.    Petitioner

fraudulently and with the intent to evade tax made false and

misleading statements to respondent’s revenue agents during the
                               - 16 -

examination of petitioner’s income tax liabilities.     Finally,

petitioner was aware of the requirement to file Federal income

tax returns, and he failed to do so with the intent to evade tax.

     The foregoing facts as alleged in respondent’s answer

clearly and convincingly establish that in failing to file tax

returns for 2001 and 2002 petitioner intended to evade paying

taxes and thereby committed fraud.      These facts are established

by virtue of petitioner’s default.      Accordingly, we shall sustain

respondent’s determination of the additions to tax for fraudulent

failure to file under section 6651(f) by entry of a default

judgment against petitioner.

     To reflect the foregoing,


                                         An appropriate order and

                                  decision will be entered.
