                                   T.C. Memo. 1998-422



                             UNITED STATES TAX COURT



                       ERNEST NEWTON, Petitioner v.
               COMMISSIONER OF INTERNAL REVENUE, Respondent



       Docket No. 22926-96.                                Filed November 24, 1998.



       Ernest Newton, pro se.

       Carmino J. Santaniello, for respondent.



                                   MEMORANDUM OPINION

       VASQUEZ, Judge:        Respondent determined the following

deficiencies in, additions to, and penalties on petitioner's

Federal income taxes:

                                      Additions to Tax                Penalty
Year   Deficiency   Sec. 6651(a)(1)       Sec. 6651(f)   Sec. 6654   Sec. 6663


1991   $80,822.57         --               $60,616.92     $64.36          --
1992    76,176.58      $7,617.66               --           --       $57,132.43
1993    53,683.19      13,420.80               --           --        40,262.39
                               - 2 -


     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.

Background

     On October 21, 1996, petitioner invoked the jurisdiction of

this Court by timely filing a petition.   At the time he filed the

petition, petitioner resided in New Haven, Connecticut.

     On December 23, 1996, respondent timely filed an answer to

the petition denying that respondent erred with respect to the

determinations set forth in the deficiency notice.   Respondent's

answer includes specific allegations in support of the

determination that petitioner is liable for an addition to tax

for fraudulent failure to file for 1991 and for the fraud penalty

for 1992 and 1993.

     Petitioner failed to file a reply denying the allegations

contained in respondent's answer.   Thus, on March 20, 1997,

respondent filed a motion under Rule 37(c) to have the undenied

allegations of fact deemed admitted.   By notice of filing dated

March 20, 1997, petitioner was notified of the filing of

respondent's Rule 37(c) motion.   Petitioner failed to file a

reply to respondent's answer pursuant to the Court's notice of

filing.   On April 17, 1997, we granted respondent's motion.

     Respondent's answer reads, in pertinent part, as follows:

          6. FURTHER ANSWERING the petition, and in support
     of the respondent's determination that a part of the
                           - 3 -


underpayments of tax required to be shown on the
petitioner's income tax returns for the taxable years
1991, 1992 and 1993 is due to fraud, the respondent
alleges:

     a. The petitioner has not filed a return for the
1991 taxable year.

     b. The petitioner filed his 1992 and 1993 returns
on September 17, 1993 and October 14, 1994,
respectively.

     c. During the 1991, 1992 and 1993 taxable years,
petitioner was the sole proprietor of a bar in New
Haven, Connecticut known as "Newt's Cafe".

               *   *   *    *      *   *   *

      f. For the 1991 taxable year, the respondent
determined that the petitioner * * * [had gross
receipts] totalling $365,464.00 in the aggregate.
* * *

      g. For the 1992 taxable year, the respondent
determined that the petitioner * * * [had gross
receipts] totalling $359,427.00 in the aggregate.
* * *

      h. For the 1993 taxable year, the respondent
determined that the petitioner * * * [had gross
receipts] totalling $294,026.00 in the aggregate.
* * *

     i. Since the petitioner did not file a return for
1991, he did not report any gross receipts for Newt's
Cafe for 1991. For the 1992 and 1993 taxable years,
the petitioner reported gross receipts in the amounts
of $91,396.03 and $136,549.75, respectively, for Newt's
Cafe. Thus, the petitioner understated his gross
receipts from Newt's Cafe by $365,464.00, $268,031.00
and $157,476.00, for the 1991, 1992 and 1993 taxable
years, respectively.

               *   *   *    *      *   *   *

     l. During the 1992 and 1993 taxable years, the
petitioner received pension and IRA distributions in
the amounts of $10,924.00 and $14,500.00, respectively,
                              - 4 -


     from Frank Perrotti and Sons, Inc. and Peoples Bank,
     respectively, which were not reported on his returns.

          m. The petitioner failed to file an income tax
     return for the 1991 taxable year, even though he had
     substantial income which required him to file a return.

          n. The petitioner failed to accurately report his
     income, when he filed his income tax returns for the
     1992 and 1993 taxable years.

          o. The petitioner's failure to file his 1991
     [return] and to report gross income in the amount of
     $365,464.00 and taxes due in the amount of $80,822.57
     were fraudulent with the intent to evade taxes.

          p. The petitioner's failure to report gross
     income in the amounts of $268,031.00 and $157,467.00
     for the 1992 and 1993 taxable years, respectively, was
     fraudulent with the intent to evade taxes.

          [q]. The petitioner's understatement of his
     federal tax liabilities in the amounts of $76,176.58
     and $53,683.19 for the 1992 and 1993 taxable years,
     respectively, was fraudulent with the intent to evade
     taxes.

          [r]. A part of the underpayment of tax required
     to be shown on the petitioner's federal income tax
     returns for each of the taxable years 1991, 1992 and
     1993 is due to fraud with the intent to evade taxes.

     On January 2, 1998, respondent filed a request for

admissions with the Court, a copy of which respondent had served

on petitioner on December 30, 1997.   Petitioner did not file any

response to the request for admissions.    As a result, each matter

set forth therein is deemed admitted.1    Rule 90(c); Marshall v.

Commissioner, 85 T.C. 267, 272 (1985).


     1
        The request for admissions reiterates many of the facts
alleged in the answer that were deemed admitted.
                                  - 5 -


     Petitioner did not comply with the Court's Standing Pretrial

Order and did not cooperate with respondent in preparing this

case for trial and/or attempting to settle it.   Consequently,

none of the facts have been stipulated.

     At the trial of this case, the following colloquy took place

between petitioner and the Court:

     THE COURT:    Mr. Newton, do you have any evidence?

     MR. NEWTON:   No, I don't.

     THE COURT:    You don't have any evidence to present.

     MR. NEWTON:   No.

Petitioner failed to present any evidence at trial.

     The Court, in an Order to Show Cause dated May 15, 1998,

stated the following:

          ORDERED that, on or before June 1, 1998,
     petitioner shall serve on respondent and file with the
     Court a written offer of proof setting forth in detail
     any and all testimony and documents that he would offer
     in evidence in the event that further trial of this
     case were held, and petitioner shall serve on
     respondent and file with the Court his opening brief
     setting forth his legal arguments in this case. It is
     further

          ORDERED that, in his offer of proof and opening
     brief hereinabove ordered, petitioner shall show cause
     in writing why a decision on all or some of the issues
     in this case should not be entered against him or some
     lesser sanction imposed, pursuant to Rules 123(a) and
     (b) and 149(b), Tax Court Rules of Practice and
     Procedure, by reason of his failure to comply with the
     Rules and Orders of the Court or to proceed as required
     by the Court during trial, or otherwise properly to
     prosecute this case. See generally Kadin Corp. v.
     United States, 782 F.2d 175, 176 (Fed. Cir. 1986);
     Henderson v. Duncan, 779 F.2d 1421, 1424-1425 (9th Cir.
                               - 6 -


     1986); Matter of Sanction of Baker, 744 F.2d 1438, 1446
     (10th Cir. 1984). Said showing shall take into account
     each and all of the following aspects of petitioner's
     conduct in this case:

          1. Failure to produce for stipulation, in
     accordance with Rule 91(b), documentary and written
     evidence that petitioner intended to introduce at
     trial;

          2. Failure to comply with the Court's Standing
     Pre-Trial Order served October 16, 1997;

          3. Refusal to present evidence at trial of
     specific business transactions engaged in by him during
     the years in issue;

          4. Failure to file a reply to affirmative
     allegations in the answer, in accordance with Rule 37.

          5. Failure to file a response to respondent's
     requests for admission, in accordance with Rule 90.

     Petitioner did not file a response to the Court's Order to

Show Cause dated May 15, 1998, nor did he file a brief in this

case.   The Court, in an Order dated September 28, 1998, stated

the following:

          ORDERED that the Court's Order to Show Cause,
     dated May 15, 1998, is hereby made absolute and this
     case remains submitted to the undersigned based on the
     transcript of the proceedings of March 16 and 17, 1998,
     and no further evidence will be received and no further
     briefs will be accepted.

Discussion

     Rule 123(a) provides that if any party fails to plead or

otherwise proceed as provided by the Rules or as required by the

Court, that party may be held in default on the motion of the

other party or on the initiative of the Court.   See Smith v.
                                - 7 -


Commissioner, 91 T.C. 1049, 1056 (1988), affd. 926 F.2d 1470 (6th

Cir. 1991).   The action or nonaction on the part of a taxpayer

that constitutes sufficient grounds to apply Rule 123(a) in

proceedings before us is a matter within this Court's discretion.

Id.

      Petitioner's failure to proceed with prosecution of his

case, despite the Court's warning in its notice setting this case

for trial, its pretrial order, and the Order to Show Cause dated

May 15, 1998, constitutes sufficient grounds for the entry of a

default judgment against him.   Accordingly, we shall sustain

respondent's determinations as to the deficiencies and the

additions to tax pursuant to sections 6651(a)(1) and 6654 on the

ground that petitioner either defaulted or simply failed to carry

his burden of proof.2   See, e.g., Smith v. Commissioner, supra at

1052.

      Respondent also determined that petitioner is liable for an

addition to tax for fraudulent failure to file for 1991 and the

fraud penalty for 1992 and 1993.   Entry of a default decision as

to the addition to tax for fraud and the fraud penalty is

appropriate if the pleadings set forth sufficient facts which

      2
        We note that, among other things, respondent determined
the following: (1) Petitioner is entitled to $97,710.12 for cost
of goods sold in 1991; (2) petitioner is entitled to an
additional $19,881.06 and $1,041.16 for cost of goods sold in
1992 and 1993, respectively; and (3) petitioner is entitled to
deduct $11,700, $22,360, and $22,360 for subcontract and employee
expenses in 1991, 1992, and 1993, respectively.
                                - 8 -


clearly and convincingly support such a decision.   Id. at 1058-

1059.

     The facts alleged in the answer, deemed admitted, together

with the facts alleged in the request for admissions, deemed

admitted, constitute clear and convincing evidence that

petitioner fraudulently underpaid his taxes for the years in

issue.   Prominent among the matters contained in the answer are

petitioner's admissions that:   (1) Petitioner understated taxable

income in the amounts of $365,464 for 1991, $268,031 for 1992,

and $157,476 for 1993; (2) the deficiency for each of the years

in issue is due to fraud with intent to evade taxes; (3)

petitioner did not file a return for 1991; and (4) his failure to

file a return for 1991 was fraudulent with the intent to evade

taxes.

     The pleaded facts clearly and convincingly establish that

petitioner fraudulently failed to file a return for 1991 and

fraudulently underpaid his income taxes for the years in issue.

Thus, we are satisfied that the addition to tax for fraudulent

failure to file and the fraud penalty for the years in issue

should be sustained by the entry of a default judgment against

petitioner pursuant to Rule 123(a).

     Finally, we consider whether petitioner has engaged in

behavior that warrants imposition of a penalty pursuant to

section 6673.   Section 6673(a)(1) authorizes the Tax Court to
                                 - 9 -


require a taxpayer to pay to the United States a penalty not in

excess of $25,000 whenever it appears that proceedings have been

instituted or maintained by the taxpayer primarily for delay or

that the taxpayer's position in such proceeding is frivolous or

groundless.

     A taxpayer’s failure to provide the Commissioner with

information requested and his failure to offer evidence at trial

pertaining to the substantive issues raised in the notice of

deficiency are evidence that a suit in this Court was instituted

primarily for delay.    Stamos v. Commissioner, 95 T.C. 624, 638

(1990), affd. without published opinion 956 F.2d 1168 (9th Cir.

1992).   The circumstances here suggest that petitioner may have

instituted and maintained this proceeding primarily for purposes

of delay; however, we shall not now impose a penalty under

section 6673(a)(1).    Nonetheless, we take this opportunity to

admonish petitioner that the Court shall strongly consider

imposing such a penalty if he returns to the Court and proceeds

in a similar fashion in the future.

     To reflect the foregoing,

                                         Decision will be entered

                                 for respondent.
