                               T.C. Memo. 2013-69



                         UNITED STATES TAX COURT



                   TOMMY K. CRYER, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 8118-09.                             Filed March 11, 2013.



      Emile L. Hebert, III, for respondent.



                           MEMORANDUM OPINION


      GOEKE, Judge: After the filing of the petition herein Mr. Cryer died. No

substitution of any personal representative has been made. Consequently, when the

case was called for trial, no appearance was made for Mr. Cryer.

      This case is before the Court for redetermination of the income tax liabilities

of Mr. Cryer for the tax years 1993 through 2001.
                                           -2-

[*2] From 1993 through 2001 the late Mr. Cryer operated a sole proprietorship

law practice but did not file Federal income tax returns. After an audit using a bank

deposits analysis, respondent determined Mr. Cryer had significant income and was

liable for various additions to tax for each of the years.1

       After Mr. Cryer petitioned this Court, he met with respondent and the parties

agreed that significant reductions in the income tax and additions to tax were in

order which led to various concessions by respondent before trial.




       1
           Respondent’s notice of deficiency determinations were as follows:

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

1993                $67,332         $48,815.70          $16,833.00     $2,821.17
1994                  69,317          50,254.83          17,329.25       3,571.36
1995                  93,663          67,905.68          23,415.75       5,113.22
1996                  56,930          41,274.25          14,232.50       3,030.12
1997                290,346         210,500.85           72,586.50     15,641.09
1998                  56,926          41,271.35          14,231.50       2,583.77
1999                  88,712          64,316.20          22,178.00       4,260.61
2000                  72,705          52,711.13          18,176.25       3,910.42
2001                  52,875          38,334.38          13,218.75       2,113.08
                                          -3-

[*3] I. Concessions

       First, the only adjustment for the tax year 1993 was for Mr. Cryer’s

unreported income from his law practice for that tax year, and that adjustment was

based upon a bank deposits analysis. However, when counsel for respondent

received the administrative file for this matter, it did not contain any bank statements

for that tax year. Counsel for respondent then determined that Mr. Cryer’s bank

statements for the tax year 1993 were no longer available. Accordingly, respondent

has conceded in full all adjustments for the tax year 1993.

       Second, the adjustments for Mr. Cryer’s unreported income from his law

practice for each of the tax years 1994 through 2001 were also based upon a bank

deposits analysis. In the notices of deficiency, the amounts determined under the

bank deposits analysis were as follows:

                            1994                     1995               1996
 Net taxable deposits      $347,952                $456,935           $294,705
 Less reported gross
  receipts                    -0-                      -0-                -0-
  Total unreported
   gross receipts           347,952                 295,134            294,705
                                             -4-

 [*4]              1997         1998               1999          2000          2001
 Net taxable
  deposits       $1,357,713    $295,134        $409,006         $347,952      $456,935
 Less reported
  gross
  receipts           -0-          -0-                -0-           -0-           -0-
  Total
   unreported
   gross
   receipts       1,357,713     295,134            409,006       347,952       456,935

        Before he died Mr. Cryer and counsel for respondent reviewed the bank

deposits analysis and determined that some adjustments to that analysis were

warranted. After making those adjustments, the amounts determined under the bank

deposits analysis are as follows and are the amounts remaining at issue:

                    1994          1995              1996          1997          1998
 Net taxable
  deposits       $117,022.29   $141,768.28     $117,405.30      $120,910.39   $106,802.44
 Less reported
  gross
  receipts            -0-           -0 -              -0-           -0 -          -0 -

  Total
   unreported
   gross
   receipts       117,022.29    141,768.28         117,405.30    120,910.39    106,802.44
                                           -5-

 [*5]                        1999                  2000                  2001

 Net taxable
  deposits               $104,394.53             $54,726.02           $87,123.89

 Less reported gross
  receipts                   -0-                     -0-                  -0-


  Total unreported
   gross receipts          104,394.53             54,726.02             87,123.89



        The amounts respondent conceded for 1994, 1995, 1996, 1997, 1998, and

1999 are all of the deposits to the Tommy K. Cryer, Attorney-at-Law, Trust

Accounts Mr. Cryer maintained during those tax years. The amounts respondent

conceded for 2000 and 2001 are (a) all of the deposits to the Tommy K. Cryer,

Attorney-at-Law, Trust Accounts Mr. Cryer maintained during those tax years, and

(b) all of the deposits to another of Mr. Cryer’s bank accounts maintained during

those tax years.2

        Third, on the basis of the payroll tax returns Mr. Cryer filed for his law

practice for the tax years 1994 through 2001 and information obtained from third

parties, he is entitled to the following deductions claimed on Schedule C, Profit or

Loss From Business:


        2
       When respondent received the administrative file in this matter, it did not
contain any bank statements for that other account for 2000 or 2001, and respondent
determined that those bank statements were no longer available.
                                         -6-

 [*6]               1994         1995           1996         1997           1998
 Wages            $20,150      $21,025      $23,125         $23,125        $24,050
 Taxes &
  licenses           1,975       2,101          2,202         2,134          2,274
 Other
  expenses          13,380      13,380         13,380        13,380         13,380
 Allowable
  Sch. C
  expenses          35,505      36,506         38,707        38,639         39,704



                              1999                 2000                 2001

 Wages                       $22,635             $21,275              $21,275


 Taxes & licenses              2,166                2,062                  2,062
 Other expenses               13,380              13,380                13,380
 Allowable Sch. C
  expenses                    38,181              36,717                36,717

II. Developments After Mr. Cryer’s Death

        On July 19, 2012, pleadings were filed opening the Succession of Tommy K.

Cryer in the First Judicial District Court, Parish of Caddo, State of Louisiana

(docket No. 560863-B). In those proceedings, the court denied probate of a

purported will of Mr. Cryer. The State court has yet to appoint anyone as

the executor, the administrator, or the independent administrator of the

succession, nor has it appointed anyone to act as curator for any missing heir(s).
                                           -7-

[*7] There is no party remaining to litigate this case for Mr. Cryer; but because of

the complexity of the case and respondent’s concessions, the Court determined that

respondent must present evidence to sustain the additions to tax.

                                       Background

       Decedent, Mr. Cryer, was a resident of Louisiana when he filed the petition.

       During the tax years 1993 through 2001 Mr. Cryer operated a sole

proprietorship law office but did not file a Federal income tax return for any of those

years. On January 10, 2001, respondent’s revenue agent sent a letter to Mr. Cryer

regarding his tax years 1993 through 1999. Attached to that letter was a

request for documents for the tax years 1993 through1999, including: (a) general

ledgers for his businesses; (b) records detailing asset sale(s) in those tax years; (c)

all business bank account information including statements, deposit slips, and

returned checks for those tax years; (d) verification of all business expenses for

those tax years; (e) copies of all filed payroll returns for those tax years; and (f) all

personal bank statements for those tax years. Mr. Cryer never produced any of the

requested records.

       Mr. Cryer failed to maintain, and during the audit for his tax years 1993

through 2001 failed to submit for examination by respondent, complete and

accurate books and records of his income-producing activities for those tax years.
                                         -8-

[*8] As a result of Mr. Cryer’s failure to maintain complete and accurate records of

his income-producing activities and his failure to produce complete and accurate

records to respondent in connection with the examination of his tax years 1994

through 2001, respondent could not determine from Mr. Cryer’s records the amount

of his gross receipts from his sole proprietorship law practice for the tax years 1993

through 2001. Thus, respondent determined Mr. Cryer’s gross receipts from his

sole proprietorship for those tax years through the use of the bank deposits method.

The revenue agents who conducted the audit for Mr. Cryer’s tax years 1993 through

2001 analyzed Mr. Cryer’s bank records for those tax years to determine the gross

receipts for his sole proprietorship law practice during the tax years 1993 through

2001. In making that analysis, the revenue agents reviewed Mr. Cryer’s bank

records to determine whether any of the deposits thereto included nontaxable items

such as loans and interaccount transfers.

      Mr. Cryer was married to Carolyn F. Cryer in Louisiana during all of the tax

years 1994 through 1998 and during the tax year 1999 until Ms. Cryer died in

March 1999. Louisiana is a community property State, and respondent’s

calculations reflect only Mr. Cryer’s share of the community income while he was

married.
                                              -9-

[*9] On the basis of payments reported by third parties, respondent determined

that Mr. Cryer received $3,000 of nonemployee compensation in 1995 and $367 of

capital gains in 1998, one-half of each being unreported income of Mr. Cryer for the

respective tax years. Additionally, on the basis of the payments reported by third

parties, respondent determined that Mr. Cryer’s unreported interest income is as

follows:


                                                Unreported interest     Mr. Cryer’s
                           Total unreported    income reportable by unreported interest
            Year            interest income     Mr. Cryer’s spouse       income

             1994               $140                  $70                   $70
             1995                315                  157                   158
             1996                 42                   21                    21
             1997                182                   91                    91
             1998                 57                   28                    29
             1999                138                   69                    69
             2000                 91                   -0-                   91
             2001                 79                   -0-                   79

Mr. Cryer’s unreported royalty income is as follows:

                                              Unreported royalty
                    Total unreported royalty income reportable by Mr. Cryer’s unreported
           Year             income            Mr. Cryer’s spouse      royalty income

           1995             $106                    $53                     $53
           1996               71                     35                      36
           1997              141                     70                      71
           1998               30                     15                      15
           1999               85                     42                      43
           2000              384                     -0-                    384
           2001              253                     -0-                    253
                                         - 10 -

[*10]                                 Discussion

I. Addition to Tax for Fraudulent Failure To File

        Under Rule 142(b),3 the Commissioner bears the burden of proving fraud by

the taxpayer. The Commissioner’s burden of proving that an addition to tax under

section 6651(f) for fraudulent failure to file a tax return is appropriate may be met

by evidence of (1) an underpayment of income tax (a deficiency); (2) the intent of

the taxpayer to evade taxes known or believed to be owing; and (3) a failure to file a

required return, unless due to reasonable cause. Sec. 7454 (a); Rule 142(b);

Considine v. United States, 683 F.2d 1285, 1286 (9th Cir. 1982); Dunlap v.

Commissioner, T.C. Memo. 1993-187; Schmitz v. Commissioner, T.C. Memo.

1983-482.

        During the tax years 1994 through 2001 Mr. Cryer operated a sole

proprietorship law practice and also received nonemployee compensation, gains

derived from dealing in property, interest, and royalties.   Mr. Cryer did not file a

Federal income tax return for any of the tax years 1994 through 2001 and did not

report any of the income he received during those tax years.



        3
        All Rule references are to the Tax Court Rules of Practice and Procedure,
and all section references are to the Internal Revenue Code (Code) in effect for the
years in issue.
                                        - 11 -

[*11] Mr. Cryer failed to maintain and to submit for examination by respondent

complete and accurate books and records of his income-producing activities for

those years. As a result, respondent used a bank deposits analysis.

      The presence or absence of fraud is never presumed but is a question of fact

that must be established by affirmative evidence. Gajewski v. Commissioner, 67

T.C. 181, 199 (1976), aff’d without published opinion, 578 F.2d 1383 (8th Cir.

1978); Beaver v. Commissioner, 55 T.C. 85, 92 (1970). Respondent may prove Mr.

Cryer’s fraudulent intent by presenting affirmative proof that he intended to evade

taxes that he knew or believed that he owed, by conduct intended to conceal,

mislead, or otherwise prevent the collection of such taxes. See Webb v.

Commissioner, 394 F.2d 366 (5th Cir. 1968), aff’g T.C. Memo. 1966-81; Rowlee v.

Commissioner, 80 T.C. 1111, 1123 (1983). Respondent may also prove Mr.

Cryer’s fraudulent intent by means of circumstantial evidence where direct evidence

is unavailable. See Stone v. Commissioner, 56 T.C. 213, 223-224 (1971); Otsuki v.

Commissioner, 53 T.C. 96, 105-106 (1969).

      Mr. Cryer failed to report the following amounts of taxable income he

received during the tax years 1994 through 2001:
                                        - 12 -

 [*12]              1994                          $40,828.65
                    1995                            54,395.14
                    1996                            39,406.15
                    1997                            41,297.70
                    1998                            33,777.22
                    1999                            33,218.77
                    2000                            18,483.02
                    2001                            50,738.89

The substantial amounts of taxable income Mr. Cryer failed to report for the tax

years at issue are evidence of his fraudulent intent for those tax years. See Ballard

v. Commissioner, 740 F.2d 659 (8th Cir. 1984), aff’g in part, rev’g in part T.C.

Memo. 1982-466; Marcus v. Commissioner, 70 T.C. 562 (1978), aff’d without

published opinion, 621 F.2d 439 (5th Cir. 1980); United States v. Diehl, 460 F.

Supp. 1282 (S.D. Tex. 1978), aff’d, 586 F.2d 1080 (5th Cir. 1978).

      Furthermore, in the fall of 2003 Mr. Cryer submitted income tax returns for

1994, 1995, 1996, and 1997 to the State of Louisiana listing the amounts of

$34,310, $25,793, $43,718, and $59,877, for the years 1994, 1995, 1996, and

1997, respectively, on line 7 (Federal adjusted gross income) of the Louisiana

individual State income tax returns for those years. Attached to each of those
                                        - 13 -

[*13] returns was a statement in which Mr. Cryer wrote he “entered the total of all

income received during the tax year”.

       La. Rev. Stat. Ann. sec. 47:42A (2001), which was in effect during the tax

years 1994 through 2001, provided that “Gross income includes gains, profits, and

income derived from salaries, wages, or compensation for personal service * * * or

from professions, vocations, trades, businesses * * *[and] from interest * * * or the

transaction of any business carried on for gain or profit”. La. Rev. Stat. Ann. sec.

47:161A (2001), which was also in effect during the tax years 1994 through 2001,

provided that “[i]n the case of a resident individual, items of gross income

* * * from whatever source received * * * shall be included in the taxpayer’s return

and the amount of the tax shall be computed upon the entire income from whatever

source derived”. Mr. Cryer’s Louisiana income tax returns for 1994, 1995, 1996,

and 1997 are admissions that he knew that the income he received during those tax

years was taxable as gross income under the laws of the State of Louisiana.

      Those Louisiana income tax statutes are similar to the Code, which provides

that gross income means all income from whatever source derived, including

compensation for services (including fees) and gross income derived from

business. Sec. 61(a)(1) and (2). Accordingly, Mr. Cryer, who was a practicing
                                        - 14 -

[*14] attorney in Louisiana during those tax years, knew or should have known that

the income he received at least during the years 1994-97 was taxable as gross

income under the Code.

      Nevertheless, in the statements attached to his Louisiana income tax returns

for tax years 1994, 1995, 1996, and 1997 Mr. Cryer alleges that none of the income

he reported on those tax returns “can be regarded as ‘Federal Adjusted Gross

Income’.” In those statements Mr. Cryer also alleged that he “did not have any

taxable items of income from a taxable source (Federal gross income and Federal

gross adjusted income) as defined by the provisions of the Code (title 26, United

States Code), and the Code of Federal Regulations during the year” of that return.

Furthermore, in his January 26, 2001, letter in response to the revenue agent’s

January 10, 2001, letter requesting that he produce certain documents, Mr. Cryer

wrote: “I have no records of having any taxable items of gross income from a

taxable source for the years listed in your letter, 1993-1999.”

      In essence, Mr. Cryer claimed that the income he received during the tax

years at issue from certain “sources” was taxable under Louisiana law, but not

under Federal law. In United States v. Clayton, 506 F.3d 405, 412 (5th Cir. 2007),

the Court to which an appeal would lie in this case, cited and followed its prior

unpublished opinion holding that “the argument that income derived from sources
                                        - 15 -

[*15] within the United States” is not taxable under Federal law is “patently

frivolous” and “absurd”.

      In his January 26, 2001, letter Mr. Cryer also wrote: “I note that none of the

enclosures, some of which request information and/or documentation, have OMB

control numbers, indicating to me that they are not official requests requiring a

response.” In Lonsdale v. United States, 919 F.2d 1440, 1445 (10th Cir. 1990),

the court held that “the Paperwork Reduction Act is inapplicable to ‘information

collection request’ forms issued during an investigation against an individual to

determine his or her tax liability.” See also 44 U.S.C. sec. 3518(c)(1)(B)(ii)

(2002).

      Mr. Cryer’s allegations that (a) income of a U.S. citizen earned in and while a

resident of a State is not taxable under the Code and (b) that documents issued

by the Internal Revenue Service without OMB numbers are invalid have

repeatedly been rejected by this Court as well as other Federal courts. United

States v. Bell, 414 F.3d 474, 475-476 (3d Cir. 2005); United States v. Hicks, 947

F.2d 1356, 1359 (9th Cir. 1991); Williams v. Commissioner, 114 T.C. 136, 138-

139 (2000); McDougall v. Commissioner, T.C. Memo. 1992-683, aff’d without

published opinion, 15 F.3d 1087 (9th Cir. 1993).
                                         - 16 -

[*16] Additional evidence of the fact that Mr. Cryer had but failed to report taxable

income during at least some of the tax years at issue is found in two loan

applications he submitted to banks. In a loan application Mr. Cryer signed on April

28, 1995, and gave to Minden Bank & Trust Co., he listed $50,000-$75,000 per

year in the block entitled “Your Present Gross Salary or Commission”. Similarly, in

a loan application date stamped January 18, 2001, that Mr. Cryer gave to Regions

Bank, he listed $6,000 in the field entitled “Gross Monthly Income” and $1,500 in

the field entitled “Other Monthly Income”.

      The facts supporting respondent’s determination that Mr. Cryer fraudulently

and with intent to evade taxes failed to file Federal income tax returns reporting his

taxable income and income tax liabilities for the tax years 1994 through 2001

include but are not limited to the following:

             (1) Mr. Cryer’s awareness of requirements under the

             Internal Revenue Code for filing returns as evidenced by

             the Federal payroll tax returns he filed for his law practice

             during each of the tax years 1994 through 2001;

             (2) Mr. Cryer’s failure to file a Federal income tax return

             for any of the tax years 1994 through 2001;
                                         - 17 -

[*17]        (3) Mr. Cryer’s failure to maintain and submit to

             respondent complete and accurate records of his sole

             proprietorship law practice for 1994 through 2001;

             (4) Mr. Cryer’s failure to report any of his gross receipts

             from his sole proprietorship law practice;

             (5) Mr. Cryer’s failure to report any of the other income

             he received;

             (6) Mr. Cryer’s admissions on his Louisiana income tax

             returns that he received income that was taxable under

             Louisiana law during the tax years at issue;

             (7) Mr. Cryer’s acknowledgments on loan applications

             that he submitted to banks that he had taxable income

             During some of the years at issue; and

             (8) Mr. Cryer’s eight-year pattern of such activity.

These facts, taken together, satisfy respondent’s burden of proving fraudulent intent

and establish that Mr. Cryer is liable for additions to tax under section 6651(f) for

the tax years 1994 through 2001.
                                         - 18 -

[*18] II. Additions to Tax for Failure To Timely Pay Tax

      Because Mr. Cryer did not file Federal income tax returns for 1994 through

2001, respondent prepared substitutes for returns. See sec. 6020(b). Additionally,

Mr. Cryer has never made any payments for his Federal income tax for any of the

years. See, e.g., Asbury v. Commissioner, T.C. Memo. 2011-107.

      Section 6651(a)(2) provides that if a taxpayer fails to pay taxes, unless the

failure is due to reasonable cause and not due to willful neglect, there shall be added

to the amount required to be shown as tax on the return an amount equal to 0.5% for

each month during which the taxpayer continues to fail to pay such taxes, not

exceeding 25% in the aggregate. The record shows no basis to find reasonable

cause. Accordingly, imposition of the additions to tax under section 6651(a)(2) for

1994 through 2001 is justified. See Pryor v. Commissioner, T.C. Memo. 1994-287.

III. Additions to Tax Under Section 6654 for Failure To Make the Required
     Estimated Tax Payments

      Section 6654(a) provides that if a taxpayer underpays estimated taxes, there

shall be added to the tax an amount determined at the annual rate established under

section 6621 on the amount of the underpayment for the period of said

underpayment. In this case, despite receiving gross receipts from his sole
                                        - 19 -

[*19] proprietorship law practice, nonemployee compensation capital gains, interest

income, and royalties during 1994 through 2001, Mr. Cryer made no estimated tax

payments for any of those years. Accordingly, the imposition of the additions to tax

for Mr. Cryer’s failure to pay his estimated tax for the years 1994 through 2001 is

justified. See Ballmer v. Commissioner, T.C. Memo. 2007-295; Horner v.

Commissioner, T.C. Memo. 1994-447.

      To reflect the foregoing and concessions by respondent,


                                                       Decision will be entered

                                                 under Rule 155.
