                        T.C. Memo. 1999-107



                      UNITED STATES TAX COURT



                  HAROLD POTTORF, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 19636-95.                     Filed April 1, 1999.



     Harold Pottorf, pro se.

     Michael L. Bowman, for respondent.



                        MEMORANDUM OPINION

     GERBER, Judge:   Respondent determined deficiencies in income

tax and additions to tax for petitioner’s 1983 through 1987

taxable years as follows:
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                                       Additions to Tax
Year        Deficiency       Sec. 6653(b)(1)      Sec. 6653(b)(2)
                                                        1
1983         $52,450             $26,225
                                                        1
1984          27,852              13,926
                                                        1
1985          12,376               6,188

                           Sec. 6653(b)(1)(A)     Sec. 6653(b)(1)(B)
                                                        1
1986         $39,035           $29,276
                                                        1
1987          18,827            14,120
       1
        50 percent of the interest due on the entire deficiency.


Due to concessions1 by respondent, the following amounts

represent respondent’s reduced determinations:

                                       Additions to Tax
Year        Deficiency       Sec. 6653(b)(1)      Sec. 6653(b)(2)
                                                        1
1983         $50,450           $25,225.00
                                                        1
1984          25,892            12,946.00
                                                        1
1985          10,749             5,374.50

                           Sec. 6653(b)(1)(A)     Sec. 6653(b)(1)(B)
                                                        1
1986         $36,917           $27,687
                                                        1
1987          16,063            12,047
       1
        50 percent of the interest due on the entire deficiency.


       Due to petitioner’s failure to communicate with respondent

or to appear at the Court’s Kansas City, Missouri, February 22,

1999, trial session, respondent moved to dismiss this case for

lack of prosecution and for a default judgment.    Because

       1
       Respondent’s motion, in the portion containing the
concessions, referenced I.R.C. sec. 6653(a) (negligence) rather
than I.R.C. sec. 6653(b) (fraud) for the 1986 and 1987 tax years.
The addition to tax amounts set forth in the motion reflect that
respondent did not concede the fraud penalty in lieu of the
negligence penalty for the 1986 and 1987 tax years. The amounts
and section numbers set forth in the notice of deficiency for
1986 and 1987 also reflect that the fraud penalty was determined
and intended.
                                - 3 -


respondent bears the burden of proving fraud within the meaning

of section 6653(b)(1)2 for the 1983, 1984, 1985, 1986, and 1987

taxable years, we consider here whether respondent has satisfied

that burden.

     Respondent seeks to carry his burden, alternatively, by

means of the deemed admissions in the Court’s records and by the

allegations pleaded in respondent’s answer, which are treated as

established, due to petitioner’s failure to appear and prosecute

his case.   See, e.g., Coninck v. Commissioner, 100 T.C. 495, 497

n.3 (1993).    In this regard, respondent points out that

petitioner’s reply did not contain a denial of all of

respondent’s affirmative allegations, so that any such allegation

not expressly admitted or denied is deemed admitted.    See Rule

37(c).

     The matters deemed admitted by reason of petitioner’s

default, or through the undenied allegations in respondent’s

answer and through deemed admissions under Rule 90, are as

follows:

     For the years 1983, 1984, 1985, 1986, and 1987, petitioner

engaged in the business of farming and received income that he

did not report in the amounts of $183,570, $187,755, $154,755,


     2
       Section references are to the Internal Revenue Code as
amended and in effect for the period under consideration, and
rule references are to this Court’s Rules of Practice and
Procedure.
                              - 4 -


$190,791, and $166,208, respectively.   Petitioner failed to file

timely Federal income tax returns or pay taxes due for his

taxable years 1983 through 1987.

     Petitioner was convicted of and incarcerated for willful

failure to file Federal income tax returns for 1986 and 1987.

Petitioner’s supervised release from prison was revoked because

of his continuing failure to file returns in accord with an order

of the U.S. District Court for the District of Kansas.

     Beginning in 1980, petitioner used as his bank the National

Commodity Exchange, operated by Larry Dale Martin to hide his

financial transactions from the Internal Revenue Service.3   In

addition, petitioner failed to maintain complete and accurate


     3
       Larry Dale Martin has been described as “a ‘banker’ for
tax protesters” as follows:
     Under the name of the National Commodity Exchange * * *
     [Larry Dale] Martin offered to buy gold and silver
     coins and bullion for the accounts of persons
     distrustful of Federal Reserve notes and desiring
     maximum privacy in their financial dealings, and also
     to convert gold and silver in the depositors’ accounts
     into paper money and at the depositor’s direction pay
     his bills with the paper money. The agreements with
     the depositors stated that in buying gold and silver
     for their accounts and in paying their bills Martin was
     ‘acting only as an agent for the above specific
     purpose[s] and no other.’ The agreements also contained
     Martin’s pledge not to divulge any information about
     the agency accounts.
Commissioner v. Hendrickson, 873 F.2d 1018, 1021-1022 (7th Cir.
1989), revg. and remanding T.C. Memo. 1983-560. Several opinions
contain conclusions and/or findings that the National Commodity
Exchange’s purpose included the above-described privacy and
“banking” services without a paper trail. See, e.g., Grandbouche
v. Commissioner, 99 T.C. 604, 606-607 (1992).
                                - 5 -


records of his income-producing activities for the taxable years

1983 through 1987.    Petitioner also diverted his income from

farming to purported foreign trusts attempting to conceal his

assets.    See Kotmair v. Commissioner, 86 T.C. 1253, 1260 (1986).

On November 2, 1995, petitioner filed delinquent returns of

income for 1988 through 1994 and reflected income tax liabilities

due, and said liabilities remain unpaid.    Petitioner’s pattern of

conduct over 16 years was fraudulent with the intent to evade

tax.

       Petitioner has failed to communicate with the Court and

respondent, and he has otherwise failed to “plead” or “proceed”

within the meaning of Rule 123.    Petitioner, having failed to

prepare for or appear at trial, did not comply with Rule 91 or

this Court’s standing pretrial order.    “Entry of a default

decision for the fraud addition in the instant case therefore is

appropriate upon a determination in our ‘sound judicial

discretion’ that the pleadings set forth sufficient facts to

support such a judgment.”    Smith v. Commissioner, 91 T.C. 1049,

1058-1059 (1988) (quoting Bosurgi v. Commissioner, 87 T.C. 1403,

1408 (1986)), affd. 926 F.2d 1478 (6th Cir. 1991).

       Based on the deemed admitted facts and respondent’s

pleading, we find petitioner intended to conceal, mislead, or

otherwise prevent the collection of his taxes.    See Rowlee v.

Commissioner, 80 T.C. 1111, 1123 (1983).    Fraudulent intent may
                                 - 6 -


be inferred from a pattern of conduct.      See Spies v. United

States, 317 U.S. 492, 499 (1943).    Indicia of fraud may include

understated or unreported income, inadequate records and/or

intentional concealment of income and assets, and failure to

cooperate with taxing authorities.       See Bradford v. Commissioner,

796 F.2d 303 (9th Cir. 1986), affg. T.C. Memo. 1984-601.

     Based on the above, we hold that petitioner is liable for

the addition to tax for fraud for his 1983, 1984, 1985, 1986, and

1987 taxable years.   With respect to all other matters

determined, respondent does not bear the burden of proof, and

petitioner is found to have failed properly to prosecute and

defaulted on his opportunity to show respondent’s error(s).

     To reflect the foregoing,

                                      An appropriate order and

                                 decision will be entered for

                                 respondent.
