                     T.C. Summary Opinion 2009-107



                        UNITED STATES TAX COURT



                 JEROME FRANCIS SCHMITT, Petitioner v.
             COMMISSIONER OF INTERNAL REVENUE, Respondent



        Docket No. 7249-06S.               Filed July 13, 2009.



        Jerome Francis Schmitt, pro se.

        Brian Bilheimer and Marco Franco, for respondent.



     DEAN, Special Trial Judge:     This case was heard pursuant to

the provisions of section 7463 of the Internal Revenue Code in

effect when the petition was filed.       Pursuant to section 7463(b),

the decision to be entered is not reviewable by any other court,

and this opinion shall not be treated as precedent for any other

case.     Unless otherwise indicated, subsequent section references

are to the Internal Revenue Code in effect for the years at
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issue, and all Rule references are to the Tax Court Rules of

Practice and Procedure.

     Respondent determined for 2001 a deficiency in petitioner’s

Federal income tax of $4,456, a fraud penalty under section 6663

of $2,815, and in the alternative an accuracy-related penalty

under section 6662 of $128.    Respondent determined for 2002 a

deficiency in petitioner’s Federal income tax of $5,192, a fraud

penalty under section 6663 of $2,714, and in the alternative an

accuracy-related penalty under section 6662 of $315.

     Petitioner presented no argument or evidence with respect to

any of the adjustments that result in the deficiencies for either

year.   He is deemed to have conceded those items.   See Bradley v.

Commissioner, 100 T.C. 367, 370 (1993); Sundstrand Corp. & Subs.

v. Commissioner, 96 T.C. 226, 344 (1991); Rybak v. Commissioner,

91 T.C. 524, 566 n.19 (1988).

     The issue remaining for decision is whether petitioner is

liable for the fraud penalty, or in the alternative the accuracy-

related penalty, for 2001 or 2002.

                              Background

     None of the facts have been stipulated.    The exhibits

received in evidence are incorporated herein by reference.     When

the petition was filed, petitioner was living in New York.

     Petitioner timely filed his Federal income tax returns for

2001 and 2002.   Petitioner marketed telecommunication services in
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the New York City area during the years at issue.    On his income

tax returns petitioner itemized his deductions and filed Forms

2106, Employee Business Expenses, claiming, before the

application of the 2-percent floor of section 67(a), employee

business expenses of $15,008 for 2001 and $14,778 for 2002.    On

line 7 of the forms, “reimbursements received from your

employer”, petitioner indicated zero.

     Respondent selected petitioner’s tax return for examination.

Revenue Agent Richard Lebrando (Lebrando) sent an appointment

letter to petitioner to begin the examination.

     Petitioner appeared for the initial examination meeting

accompanied by his return preparer.    Lebrando asked petitioner

for substantiation of his employee business expenses and

charitable contributions as shown on his Schedule A, Itemized

Deductions.   Petitioner provided to Lebrando a typewritten

statement asserting that petitioner marketed telecommunications

services and that “My company didn’t have [sic] reimbursement

policy.”   Upon receipt of petitioner’s statement, Lebrando asked

petitioner to supply him with a letter or other documentation

from his employer to corroborate the written statement.

     Petitioner provided Lebrando with an undated document

bearing an apparent letterhead with the name “Primus

Telecommunications Group, Inc.” (Primus), in response to the

agent’s document request.   The document states that petitioner
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was employed as a “Senior Account Executive” with the company in

20011 and that Primus “had no stated reimbursement policy for

their expenses at that time.”   The document is signed by a Steve

Garcia, “Sales Manager”.   Lebrando thought the document appeared

suspect because the letterhead looked just like the top of the

Web site of Primus.

     Lebrando contacted Primus and solicited a copy of its

reimbursement policy.   Primus forwarded to Lebrando a copy of its

“Financial Policy And Procedure Manual” dated February 1, 2001.

The first paragraph of the manual states:   “Employees will be

reimbursed for actual and reasonable expenses incurred while

traveling or conducting business on behalf of the Company or

attending mandatory Company meetings.”   Primus’s human resources

(HR) department informed Lebrando by letter2 that Steven Garcia

was an account executive whose manager was Richard Cadiz.     The HR

department enclosed copies of petitioner’s signed reimbursement

requests for travel expenses for 2001.

     Lebrando expanded his examination to include 2002.

Petitioner informed Lebrando that his employer in 2002 was not

the same as in 2001.    Petitioner provided Lebrando with a



     1
      Petitioner attached to his 2001 Federal income tax return a
Form W-2, Wage and Tax Statement, from Primus showing wages of
$31,337.54.
     2
      The letterhead on the human resources letter differed from
that of the document that petitioner had supplied to Lebrando.
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document indicating that it was from “Broadview Networks”

(Broadview).3   The undated document states that Broadview

employed petitioner as an account executive in 2002 and that

“Broadview Networks, Inc, had no stated reimbursement policy for

their expenses at that time.”   The document bears the signature

of a William Cory, “Sales Director”.

     Lebrando contacted Broadview and obtained from the company’s

comptroller a copy of its 30-page expense reimbursement policy

effective for 2002.   The comptroller reported to Lebrando by

letter that the statement in petitioner’s document that Broadview

had no reimbursement policy “is completely untrue.”     The

comptroller also reported that Broadview “has never employed a

Sales Director named William Cory.”

     Petitioner attempted to substantiate his mileage with

documents entitled “Log of Miles Driven” for 2001 and 2002.      The

document for 2001 purports to cover the period from January 4

through April 12, 2001.   The document for 2002 lists dates from

January 7 through October 28, 2002.     The documents show the

categories of “Contact Name & Address”, miles driven “Per

Mapquest”, and “Tolls/Parking”.

     Petitioner provided a similar document as substantiation for

his entertainment and meals expenses for 2001.     Lebrando



     3
      Petitioner attached to his 2002 Federal income tax return a
Form W-2 from Broadview Network reporting wages of $61,359.93.
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attempted to match the dates and locations on the mileage log

with those on the entertainment and meals expense log to no

avail.       No similar log was provided for 2002, but petitioner did

submit copies of American Express card statements, with certain

amounts circled for the period April 9 through December 6, 2002.

He did not explain the significance of the circled items.       There

were charges on the statements for both petitioner and Alice E.

Schmitt.       For May 5, 2002, petitioner circled charges for food

and beverages purchased in both Springfield, Virginia, and New

York.

       At trial petitioner was disruptive and refused to cooperate

with either respondent or the Court.

                                Discussion

Addition to Tax for Fraud

       The Commissioner has the burden of proving fraud by clear

and convincing evidence.       Sec. 7454(a); Rule 142(b); Parks v.

Commissioner, 94 T.C. 654 (1990).

       As part of his burden in the trial of a fraud case, the

Commissioner must first prove an underpayment of some amount of

tax.       Sec. 6663(a);4 Hebrank v. Commissioner, 81 T.C. 640, 642

(1983).       To do this, the Commissioner may not merely rely on a



       4
      Former sec. 6653 was repealed and replaced in part by sec.
6663. See Omnibus Budget Reconciliation Act of 1989, Pub. L.
101-239, sec. 7721(a), (c)(1), 103 Stat. 2395, 2399.
                                - 7 -

taxpayer’s failure to disprove the deficiency determination.

Parks v. Commissioner, supra at 660-661.

     Second, the Commissioner must show that at least some part

of the underpayment of tax was due to fraud.    Sec. 6663(a); Rule

142(b); DiLeo v. Commissioner, 96 T.C. 858, 873 (1991), affd. 959

F.2d 16 (2d Cir. 1992); Parks v. Commissioner, supra at 664;

Hebrank v. Commissioner, supra.    If the Commissioner establishes

that some portion of the underpayment is attributable to fraud,

the entire underpayment shall be treated as attributable to

fraud, except with respect to any portion of the underpayment

that the taxpayer establishes is not attributable to fraud.      Sec.

6663(b).

     The Commissioner will meet his burden of proof if it is

shown that the taxpayer intended to evade a tax known to be due

and owing by conduct intended to conceal, mislead, or otherwise

prevent tax collection.    Stoltzfus v. United States, 398 F.2d

1002, 1004-1005 (3d Cir. 1968); Parks v. Commissioner, supra at

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

existence of fraud is a question of fact to be resolved upon

consideration of the entire record.     DiLeo v. Commissioner, supra

at 874.    The Commissioner may prove fraud by circumstantial

evidence because direct evidence of the taxpayer’s intent is

rarely available.    Stephenson v. Commissioner, 79 T.C. 995,

1005-1006 (1982), affd. per curiam 748 F.2d 331 (6th Cir. 1984).
                               - 8 -

     Intent to mislead or conceal may be inferred from a pattern

of conduct.   Spies v. United States, 317 U.S. 492, 499 (1943).     A

pattern of consistent underreporting of income for several years,

especially when accompanied by other circumstances showing intent

to conceal, is strong evidence of fraud.    Holland v. United

States, 348 U.S. 121 (1954); Parks v. Commissioner, supra at 664.

An implausible explanation of behavior is also a “badge of

fraud”.   Bradford v. Commissioner, 796 F.2d 303, 307 (9th Cir.

1986), affg. T.C. Memo. 1984-601.

     The Court, however, will not sustain a determination of

fraud based only on circumstances that at most create only the

suspicion of fraudulent intent.     Katz v. Commissioner, 90 T.C.

1130, 1144 (1988); Green v. Commissioner, 66 T.C. 538, 550

(1976); Ross Glove Co. v. Commissioner, 60 T.C. 569, 608 (1973).

     Respondent has shown that petitioner failed to report the

receipt of $2,639.73 of income reported on Form 1099-R,

Distributions From Pensions, Annuities, Retirement or Profit

Sharing Plans, IRAs, Insurance Contracts, etc., in 2002 and

claimed deductions for unreimbursed employee business for which

he lacked proper substantiation for both 2001 and 2002.

Respondent has shown that petitioner underpaid his taxes for both

years.

     For both years petitioner deducted relatively large amounts

of employee business expenses for which he failed to produce
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appropriate substantiation.   Petitioner, on his tax returns,

stated that he had received no reimbursements from his employers

for his employee business expenses.       Respondent, however,

obtained records from one of his employers that show that

petitioner in fact received reimbursement for expenses in 2001

pursuant to his employer’s written reimbursement policy.         During

the examination of both his 2001 and 2002 returns, petitioner

submitted false documents to Lebrando concerning his employers’

reimbursement policies.   Petitioner’s submission of the false

documents is evidence of guilty knowledge that he could have

received or did receive expense reimbursements and falsified his

tax returns to wrongfully obtain tax deductions.

     The Court holds that respondent has produced clear and

convincing evidence that part of each underpayment of tax for

2001 and 2002 was due to fraud under section 6663.       Since

petitioner has not shown that any portion of the underpayment for

each year is not due to fraud, the entire underpayment shall be

treated as attributable to fraud.5       Sec. 6663(b).

     To reflect the foregoing,


                                         Decision will be entered

                                 for respondent.



     5
      The accuracy-related penalty under sec. 6662(a) does not
apply to any portion of an underpayment on which the fraud
penalty under sec. 6663 applies. Sec. 6662(b).
