                        T.C. Memo. 1999-143



                      UNITED STATES TAX COURT



  EDWARD A. DROZDOWSKI AND DIANA D. DROZDOWSKI, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 3034-97.              Filed April 30, 1999.


     Edward A. and Diana D. Drozdowski, pro sese.

     Ladd C. Brown, Jr. and Ellen T. Friberg, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     FOLEY, Judge:   By notice dated November 19, 1996, respondent

determined the following deficiencies, additions to tax, and

penalties relating to petitioners' Federal income taxes:
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                                          Additions to Tax1                  Penalties1
Year    Deficiency   Sec. 6653(b)    Sec. 6653(b)(1)(A)   Sec. 6653(b)(1)(B) Sec. 6663
19873    $9,703          --                $7,278                2
                                                                                 --
1988      8,833         $6,625               --                  --              --
    3
1989      8,488          --                  --                  --            $6,366
19903     4,892          --                  --                  --             3,669
1
    The additions to tax and the penalties apply only to petitioner Edward Drozdowski.
2
    Fifty percent of the statutory interest due on $9,703, computed from Apr. 15, 1988,
    to the earlier of the date of assessment or the date of payment.
3
    Respondent concedes that $425, $1,114, and $655 of the income adjustments in the
    notice of deficiency for 1987, 1989, and 1990, respectively, are not gross income
    to petitioners.

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.

    The issues for decision are whether petitioners have failed to

report wage income relating to 1987, 1988, 1989, and 1990, and

whether Mr. Drozdowski is liable for additions to tax, and

penalties, for fraud.

                                    FINDINGS OF FACT

    Petitioners, husband and wife, resided in Boca Raton, Florida,

at the time their petition was filed.                 Prior to the years in

issue, Mr. Drozdowski served 20 years in the United States Air

Force and was employed by various businesses.                   His previous

employers withheld taxes from his wages and issued him Forms W-2,

Wage and Tax Statements.             During the years in issue, Mr.

Drozdowski was an employee of Continental Plastic Card Co. (CPC),

and earned wages and bonuses totaling $28,425 in 1987, $31,525 in

1988, $34,075 in 1989, and $16,800 in 1990.                   At Mr. Drozdowski's

request, CPC did not withhold income tax from, and did not issue
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Forms W-2 relating to, his wages.   CPC employed Mrs. Drozdowski

in 1988, 1989, and 1990.   At Mrs. Drozdowski's request, CPC

withheld taxes from, and issued Forms W-2 relating to, her wages.

During 1990, CPC was purchased by Continental Card Acquisition

(CCA).   CCA employed Mr. Drozdowski for the remainder of 1990,

withheld taxes from his wages, and issued him a 1990 Form W-2.

On their income tax returns for the years in issue, petitioners

reported Mrs. Drozdowski's wages from CPC and Mr. Drozdowski's

wages from CCA but did not report Mr. Drozdowski's wages from

CPC.

  In March 1994, Mr. Drozdowski was charged, pursuant to section

7201, with evading income tax relating to 1989.   Mr. Drozdowski

pleaded guilty to the charge, was sentenced to 3 years'

probation, and was ordered to pay a fine and restitution.

Pursuant to the plea agreement, petitioners amended their tax

returns for the years in issue to report Mr. Drozdowski's wages

from CPC.

                              OPINION

  Respondent determined that petitioners failed to report Mr.

Drozdowski's wages from CPC for 1987, 1988, 1989, and 1990.

Petitioners concede that they failed to report Mr. Drozdowski's

wages from CPC for the years in issue but contend that the

payments Mr. Drozdowski received were net of income tax

withholdings.   In effect, petitioners contend that the amount of
                                - 4 -


unreported wages is greater (i.e., by the amount of the alleged

tax withholdings) than the amount determined by respondent, and

that petitioners are entitled to a withholding tax credit

relating to Mr. Drozdowski's wages from CPC.

  The record does not support petitioners' contention.    CPC did

not withhold taxes from Mr. Drozdowski's wages, and he did not

receive Forms W-2, which would have indicated the amounts of

income tax withholdings.   Thus, petitioners are not entitled to a

withholding tax credit relating to Mr. Drozdowski's wages from

CPC.   See sec. 31(a)(1); Edwards v. Commissioner, 39 T.C. 78, 84

(1962) (holding that an employee is not entitled to a credit for

taxes that were never withheld).   Petitioners bear the burden of

proof, see Welch v. Helvering, 290 U.S. 111, 115 (1933), yet have

failed to establish that they are entitled to a withholding tax

credit.

  Respondent determined that Mr. Drozdowski, pursuant to

sections 6653(b)(1)(A) and (B), 6653(b), and 6663, is liable for

additions to tax, and penalties, for fraud.    Respondent must

establish by clear and convincing evidence that, for each year in

issue, an underpayment of tax exists and that some portion of the

underpayment is due to fraud.   See Petzoldt v. Commissioner, 92

T.C. 661, 699 (1989).   A taxpayer's attempts to conceal income,

mislead the Internal Revenue Service, or prevent the collection
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of income tax may establish the requisite fraudulent intent.      See

Rowlee v. Commissioner, 80 T.C. 1111, 1123 (1983).

  Respondent has established that, for each year in issue,

petitioners' underpayment of tax was attributable to Mr.

Drozdowski's fraud.    Each of petitioners' amended returns is an

admission of a tax underpayment.    See Badaracco v. Commissioner,

464 U.S. 386, 399 (1984).   In addition, Mr. Drozdowski's actions

warrant an inference of fraud.    Mr. Drozdowski knew that his

wages from CPC were subject to income tax, yet he requested that

CPC not withhold taxes from, and intentionally failed to report,

such wages.   As a result, he underreported substantial amounts of

income relating to each year in issue.    See Holland v. United

States, 348 U.S. 121, 139 (1954) (holding that a pattern of

consistently and substantially underreporting income may justify

an inference of fraud); Otsuki v. Commissioner, 53 T.C. 96, 109

(1969) (holding that underreporting income, coupled with other

circumstances showing an intent to conceal, justifies an

inference of fraud).   Accordingly, we hold that Mr. Drozdowski is

liable for the additions to tax, and penalties, for fraud.

  Contentions we have not addressed are irrelevant, moot, or

meritless.
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To reflect the foregoing,



                                    Decision will be entered

                            under Rule 155.
