                         T.C. Memo. 1995-596



                       UNITED STATES TAX COURT



        ASSOCIATION CABLE TV, INCORPORATED, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 9421-93.           Filed December 18, 1995.



     H. Cranston Pope, for petitioner.

     Alan Friday, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION

     COHEN, Judge:    Respondent determined a deficiency of

$136,903 in petitioner's Federal income taxes for 1988 and

additions to tax of $102,677 under section 6653(b)(1) and $34,226

under section 6661.   In the answer, respondent alleged, in the

alternative, that petitioner is liable for additions to tax for

delinquency and negligence under sections 6651(a)(1) and

6653(a)(1), respectively.   Unless otherwise indicated, all

section references are to the Internal Revenue Code in effect for

the year in issue, and all Rule references are to the Tax Court

Rules of Practice and Procedure.
                                - 2 -

     The issues for decision are whether petitioner is taxable on

a gain on the sale of assets or whether it adopted a plan of

complete liquidation on or before the sale date of the assets in

accordance with the requirements of section 337 and whether

petitioner is liable for the additions to tax determined by

respondent.

                        FINDINGS OF FACT

     Some of the facts have been stipulated, and the stipulated

facts are incorporated in our findings by this reference.

Petitioner had its principal place of business in Florida at the

time the petition was filed.    During the year in issue,

petitioner was in the business of providing cable TV service.

     Association Cable TV (ACT) was incorporated in 1985.    The

corporation was owned equally by four shareholders:    Franklin W.

Briggs (Briggs), John L. Daniell (Daniell), Jimmy D. Morris

(Morris), and Mike Gay (Gay).    The corporation was formed to

provide cable TV services to a beach resort.    Subsequently, ACT

pursued and received franchise rights to provide cable TV

services to Panama City Beach, Florida.    The franchise for Panama

City Beach put ACT in competition with Jones Spacelink, Ltd.

(JSL), which also provided cable TV services in the area.    In

October 1988, JSL expressed an interest in purchasing ACT assets,

which consisted of franchise rights.    The shareholders of ACT

held an 11:00 a.m. meeting on October 24, 1988, to discuss the

offer from JSL and other ACT business.    The meeting was held at
                               - 3 -

the office of Glenn Hess (Hess), ACT's attorney.     As was

customary, the meeting was tape-recorded and later transcribed.

Various topics were discussed during the meeting.     The

shareholders discussed the offer from JSL and voted to sell ACT's

cable TV franchise rights to several geographical areas to JSL if

JSL would agree to a sales price of approximately $1.5 million.

As part of the negotiations, JSL requested a noncompetition

agreement with ACT.   The following was recorded:

          HESS: * * * they [JSL] ask for a contract with
     HARBORTOWN, they ask for a contract with PIRATES
     COVE....

          BRIGGS: We can't give them HARBORTOWN, PIRATES
     COVE, we'll just say that it will be covered by the
     non-competing agreement.

            *     *      *     *       *   *     *

          DANIELL: * * * [I]t [the noncompetition
     agreement] covers what area?

          HESS: Uh yes, Hathaway Bridge, Phillips Inlet
     Bridge, Dellwood Beach Road and the State Park, Gulf of
     Mexico... If I say the Intercoastal Waterway, I think
     they'll get a real great desire to build in West Bay.

          DANIELL: In other words, it doesn't cover Bay
     County, it's just ...

          HESS: No, I defined it specifically, Hathaway,
     Dellwood Road, and the State Park on the east, Phillips
     Inlet on the west, the Gulf and the Intercoastal
     Waterway, which is a good boundary along here, and I
     got a map showing that will be it for a period of
     5 years.

     The shareholders discussed business plans for ACT that were

to occur whether or not the sale to JSL was completed.      They also

discussed the interpersonal problems they had been having and the
                                - 4 -

possibility of disassociating themselves.    The meeting ended with

plans for Hess, Briggs, Morris, and Daniell to travel to Colorado

to meet with JSL.   The ACT shareholders (except Gay) and Hess met

with JSL in Colorado on October 27, 1988.

     ACT employed the firm of Williams, Cox, Weidner & Cox (WCWC)

as their accountants.    Prior to traveling to Colorado, ACT

contacted WCWC regarding the possible sale of ACT assets to JSL.

Mack Shepard (Shepard) and Joel Turner (Turner) were both

accountants at WCWC.    Shepard had been handling the ACT account.

Shepard asked Turner to research various options on how ACT could

structure the contemplated JSL sale from a tax perspective.

Turner researched the issue and prepared a memorandum that

outlined several alternative methods on how to structure the

sale, including liquidation.    Turner faxed the memorandum to

Briggs, Morris, Daniell, and Hess in Colorado on October 27,

1988.

     After sending the fax, Turner did not communicate with any

ACT shareholders until December 1989, over a year after the sale

to JSL.   Hess was not a tax attorney and did not advise ACT with

regard to the tax consequences of the sale.

     Hess, Briggs, Morris, and Daniell finalized the sale of ACT

assets to JSL in Colorado on October 27, 1988.    The final sales

price was $1,522,080, which included the sum of $500,000 for a

noncompetition clause.    The agreement stated in part:
                                 - 5 -

          1. Each Seller covenants and agrees with Buyer
     that for a period of five years from and after the date
     hereof, each Seller shall not, directly or indirectly,
     own, control, manage, operate, join, participate in the
     ownership, management, operation or control of, or be
     connected in any manner * * * anywhere within all
     geographic areas which are covered by or which Buyer
     has a right to serve under any cable television
     franchises or other agreements within the State of
     Florida currently held by the Buyer or any of its
     affiliates or granted to Buyer or any of its affiliates
     within five years from the date hereof, except for
     (i) the communities of Mexico Beach and Deer Point
     Lake, both in Bay County, Florida, Port St. Joe in Gulf
     County, Florida and Apalachicola in Franklin County,
     Florida, and (ii) any other communities within the Bay
     County, Florida franchise area which are not served or
     proposed to be served by Buyer or any of its affiliates
     and which have been offered to and refused by Buyer
     pursuant to the Service Agreement. The parties
     acknowledged that Sellers may build cable television
     systems for the communities of Mexico Beach and Deer
     Point Lake, both in Bay County, Florida, Port St. Joe,
     in Gulf County, Florida and Apalachicola in Franklin
     County, Florida and such shall not be construed as a
     violation of this Covenant Not to Compete. * * *

     On December 28, 1988, Gay went to Hess' office and asked

Hess to prepare minutes reflecting that on that day the

shareholders of ACT voted to liquidate the corporation.   Hess

prepared the minutes, which included resolutions that the board

of directors and shareholders of ACT voted to liquidate and

dissolve the corporation in accordance with section 337 of the

Internal Revenue Code of 1954.    No meeting or other action of the

shareholders occurred on December 28, 1988.   Gay died several

weeks after the meeting with Hess.

     In October 1989, ACT's 1988 Form 1120 tax return had not yet

been prepared by WCWC.   Shepard wrote a memorandum to Briggs on
                                - 6 -

October 11, 1989, summarizing previous discussions between Briggs

and Shepard on the treatment of the funds that ACT received from

JSL as a result of the sale.    The memorandum did not mention

liquidation.    In December 1989, WCWC began preparing ACT's 1988

Form 1120 tax return.    WCWC was operating under the assumption

that ACT had not liquidated.    After WCWC prepared a draft of

ACT's return, WCWC informed Briggs that a substantial tax

liability would be owed on the funds received from the JSL sale.

       Briggs was angry about ACT's tax liability and expressed his

anger to WCWC.    In response, J. Vern Williams (Williams), a

manager at WCWC, contacted Turner and asked Turner to get

involved with the ACT tax return.    WCWC removed Shepard from

working with ACT and asked Shepard to resign.    In a memorandum

dated December 18, 1989, Turner informed Williams that Turner had

previously advised ACT to liquidate.    Turner was referring to the

October 27, 1988, memorandum that he had prepared for the ACT

shareholders while they were in Colorado.    Turner sent Williams a

copy of the 1988 memorandum that he had prepared for the ACT

shareholders.

       Turner prepared a December 18, 1989, memorandum to ACT in

anticipation of a meeting between Turner and Briggs later that

day.    In the December 18, 1989, memorandum to ACT, Turner stated:

"We recommended a liquidation of the corporation by January 31,

1989, to qualify for the transitional rules pertaining to a tax

free liquidation under 'old code section 337'."    During the
                                 - 7 -

December 18, 1989, meeting, Turner informed Briggs that minutes

of a liquidation meeting were needed for submission to the IRS

with ACT's 1988 Form 1120 tax return.

       On December 26, 1989, Turner faxed to Briggs a sample set of

minutes to be used for a corporate liquidation.      The sample

minutes provided by Turner erroneously listed January 31, 1989,

as the date by which liquidation must be completed.      On

January 16, 1990, minutes purporting to represent a meeting

during which the shareholders of ACT agreed to liquidate arrived

at WCWC's office.    The minutes falsely stated that a meeting

occurred on October 24, 1988, at 1:00 p.m. and referred to the

erroneous date of January 31, 1989, as the date by which

liquidation must be completed.    Bill Bass (Bass), an accountant

at WCWC, received the minutes when they arrived at WCWC.       Bass

felt apprehensive about the minutes but was instructed by Turner

to take the minutes at face value.       Bass attached the minutes to

ACT's 1988 Form 1120 tax return and filed the return with the

IRS.    The false minutes were prepared by Briggs and Morris

between December 26, 1989, and January 16, 1990.

       Daniell resigned as president of ACT on May 7, 1990.     In

November 1990 and January 1991, Daniell was interviewed by the

IRS in connection with an IRS investigation of Briggs.        Daniell

told the IRS, during the January 1991 meeting, that the first

time he found out that ACT had supposedly liquidated was during
                               - 8 -

the November 1990 meeting with the IRS.    Daniell never

participated in a vote to liquidate ACT.

     In 1994, Briggs and Morris pleaded guilty to and were

sentenced for violations of 26 U.S.C. sec. 7207 (1988) for false

statements in income tax returns.

                     ULTIMATE FINDINGS OF FACT

     Petitioner did not adopt a plan of liquidation prior to or

on the sale date of its assets.

     Petitioner was liable for the tax on the gain on the sale of

its assets.

     At the time that petitioner's 1988 Form 1120 tax return was

due, officers of petitioner knew they were liable for the tax on

the gain from the sale.

     Petitioner filed a false 1988 Form 1120 tax return with the

IRS that did not report the gain with the intent to evade a tax

known to be owing.

                              OPINION

     Petitioner asserts that it had adopted an informal

liquidation plan on or before the sale date of its assets and,

therefore, the $405,776 gain that was realized on the JSL sale

was nontaxable.   Petitioner admits that it did not adopt a formal

liquidation plan because the minutes attached to the return were

created after the sale, backdated, and contained false

information.
                                - 9 -

     Respondent contends that petitioner had not timely adopted a

liquidation plan and that the gain was taxable.    Respondent

acknowledges that a formal written liquidation plan is not

required under section 337.   Respondent argues, however, that the

evidence establishes that an informal plan was not adopted.

Petitioner has the burden of proving that respondent's

determination of unreported income is erroneous.    Rule 142(a);

INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992).

Respondent, however, must prove by clear and convincing evidence

an underpayment of tax, as well as fraudulent intent, in relation

to the addition to tax for fraud.   Secs. 6653(b)(1), 7454(a);

Rule 142(b).

Gain on Sale

     The nonrecognition of gain or loss provisions of section 337

in connection with corporate liquidations were repealed by the

Tax Reform Act of 1986, Pub. L. 99-514, sec. 633(d), 100 Stat.

2085, 2280.    A transition rule allowed certain small corporations

to be eligible for section 337 nonrecognition for a longer

period.   ACT was eligible for the transitional exemption,

provided that the liquidation was completed before January 1,

1989.   Section 337 as it applied to ACT provided as follows:

     SEC. 337. GAIN OR LOSS ON SALES OR EXCHANGES IN
     CONNECTION WITH CERTAIN LIQUIDATIONS.

          (a) General Rule.--If, within the 12-month period
     beginning on the date on which a corporation adopts a
     plan of complete liquidation, all of the assets of the
     corporation are distributed in complete liquidation,
                               - 10 -

     less assets retained to meet claims, then no gain or
     loss shall be recognized to such corporation from the
     sale or exchange by it of property within such 12-month
     period.

     ACT was required to adopt a liquidation plan on or before

the sale date of its assets.   Liquidation is a process distinct

from other corporate action.

     The liquidation of a corporation is the process of
     winding up its affairs by realizing upon its assets,
     paying its debts, and appropriating the amount of its
     profit and loss. It differs from normal operation for
     current profit in that it ordinarily results in the
     winding up of the corporation's affairs, and there must
     be a manifest intention to liquidate, a continuing
     purpose to terminate its affairs and dissolve the
     corporation, and its activities must be directed and
     confined thereto. A mere declaration is not enough,
     and the question whether a corporation is in
     liquidation is one of fact. * * * [T.T. Word Supply
     Co. v. Commissioner, 41 B.T.A. 965, 980-981 (1940).]

The intent to liquidate must be adopted in a plan.    A plan is a

method of putting into effect an intention or proposal.     Burnside

Veneer Co. v. Commissioner, 167 F.2d 214, 217 (1948), affg. 8

T.C. 442 (1947).   The statute does not require a formal plan.

Mountain Water Co. v. Commissioner, 35 T.C. 418, 426 (1960).

However, if there is no formal plan, the adoption date of a

liquidation plan is determined from the facts and circumstances.

Id.; sec. 1.337-2(b), Income Tax Regs.   The facts and

circumstances must provide clear evidence of an intention to

liquidate if an informal plan is to be established.      Blaschka v.

United States, 184 Ct. Cl. 264, 393 F.2d 983, 988 (1968).
                               - 11 -

     Both petitioner and respondent rely on the October 24, 1988,

11:00 a.m. meeting and the events on the day of the sale to JSL

to substantiate their assertions.    Respondent contends that the

transcript of the October 24, 1988, 11:00 a.m. meeting contains

no reference to liquidation and establishes that petitioner

intended to continue business.    Respondent relies on the

shareholders' discussion about which geographical areas to

exclude from the noncompetition agreement in the JSL contract and

the subsequent exclusion of those areas in the contract.

     Petitioner argues that the noncompetition agreement was

added at the request of JSL and therefore is not evidence of an

intent to continue business.    Petitioner fails to acknowledge,

however, that it was the ACT shareholders who specified which

areas they wanted excluded from the agreement.    The specified

areas excluded from the agreement with JSL covered the same areas

as the ACT cable TV franchise rights contracts that were not sold

to JSL.

     Further evidence of ACT's intention to continue business are

Briggs' statements during the October 24, 1988, 11:00 a.m.

meeting.   Briggs stated:   "Well, the corporation will still be

alive after this [the JSL sale].    Because the corporation also

still has the county franchise in it."    Referring to the county

franchise and the contracts excluded from the noncompetition

agreement, Briggs stated:    "Sooner or later we are gonna have to

build the system or else total credibility is gone.    And this is
                               - 12 -

whether we sell to [JSL] or don't sell to [JSL]."     Emphasis

added.

     Petitioner relies on the shareholders' discussion on the

discord that existed between them during October 1988 as evidence

of the shareholders' intention to liquidate.     Briggs stated at

the October 24, 1988, 11:00 a.m. meeting:     "I just think it is

better off if we sell that company and we all go our ways after

that.    I think it will work better."   This statement is merely

Briggs' thoughts at the time and does not amount to a "plan" or a

"clear intention to liquidate" on the part of all or a majority

of the shareholders.

     The events on the day of the JSL sale are similarly

inadequate to establish an informal plan of liquidation.

Regarding the memorandum that Turner faxed to the shareholders in

Colorado on the day of the sale, petitioner argues:     "Even

lacking the specific words, 'WE RECOMMEND LIQUIDATION', the

Memorandum can be taken to so recommend, at least in the common

experience of almost everyone."    The memorandum from Turner to

the ACT shareholders in Colorado stated in part:

     If a plan of liquidation is adopted, it appears that a
     significant amount of a gain will not be recognized at
     the corporate level provided the plan of liquidation is
     adopted and the liquidation process is completed prior
     to January 1, 1989. * * *

     Respondent argues that, given the text of the memorandum, it

is entirely likely that the shareholders decided to leave the

decision of whether to liquidate or not for later.     Respondent's
                               - 13 -

position is supported by Turner's failure to mention in his

memorandum the timing requirement of section 337, that a

liquidation plan must be adopted on or before the sale date of

the assets.   See sec. 1.337-2, Income Tax Regs.   Petitioner

presented no evidence that its shareholders were aware of the

timing requirement.   The shareholders' lack of knowledge of the

time requirement negates an indication that they intended to act

in conformity therewith.    Briggs testified that he did not know

anything about liquidations prior to the sale.     Hess testified at

trial that he was not ACT's tax adviser and did not provide ACT

with tax advice on the day of the sale or at any other time.

     Respondent's position that ACT's decision to liquidate was

postponed until after the sale is supported by Daniell.    Daniell

informed the IRS during the November 1990 interview that, after

receiving Turner's memorandum in Colorado, he, Morris, and Briggs

left the decision to liquidate "up in the air" and that they

planned to resolve the liquidation issue at a later date.

     The shareholders' actions subsequent to the sale also fail

to establish that the shareholders adopted an informal

liquidation plan prior to or on the sale date to JSL.    Respondent

points to the liquidation minutes that Gay had Hess prepare on

December 28, 1988.    The minutes stated that the ACT shareholders

had voted to liquidate ACT on December 28, 1988, which was

2 months after the sale to JSL.   Although these minutes were not

submitted to the IRS, respondent argues, and we agree, that this
                               - 14 -

action undermines any claim that the shareholders had informally

agreed to liquidate in October 1988.

     Briggs had several conversations with Shepard in October

1989, prior to WCWC's preparing ACT's 1988 Form 1120 tax return.

During those conversations, Briggs did not tell Shepard that ACT

had voted to liquidate.   Briggs' failure to inform WCWC that ACT

had voted to liquidate until after Briggs was informed by WCWC

that there would be a large tax liability if ACT had not

liquidated also undermines a claim that ACT had informally

adopted a liquidation plan prior to the JSL sale.

     Petitioner relies on Mountain Water Co. v. Commissioner, 35

T.C. at 426, to support finding an informal liquidation plan

based on facts and circumstances.    In Mountain Water Co., the

sole asset was land that provided water for the company's water

business.   The shareholders lost the land when it was condemned

by the State.    The directors of the company had recognized that,

when the land was condemned, the purpose for the existence of the

company would cease.    After the condemnation, the corporation

filed a certification of dissolution with the State and wound up

its affairs.    This Court found that there was no question that

there was a good faith intention to liquidate the corporation

completely.

     The instant case is distinguishable from Mountain Water Co.

The sale to JSL did not require a cessation of ACT's business.

The ACT shareholders had plans to continue ACT business whether
                               - 15 -

or not the sale to JSL was completed.    Additionally, the sale of

ACT's assets to JSL did not constitute a sale of ACT's sole asset

because ACT still had outstanding contracts.

     Respondent has proven by clear and convincing evidence that

ACT had not adopted an informal plan of liquidation as required

by section 337.    Petitioner has admitted that the minutes that

were provided to the IRS with ACT's 1988 Form 1120 tax return

were false because they were created after the sale, backdated,

and documented a meeting that did not occur.

     Because neither a formal nor an informal plan of liquidation

existed prior to or on the sale date of the ACT assets to JSL,

ACT is ineligible for the nonrecognition provisions of section

337; therefore, ACT must recognize gain on the sale of its assets

to JSL.

Additions to Tax

     The addition to tax in the case of fraud is a civil sanction

provided primarily as a safeguard for the protection of the

revenue and to reimburse the Government for the heavy expense of

investigation and the loss resulting from the taxpayer's fraud.

Helvering v. Mitchell, 303 U.S. 391, 401 (1938).    In addition to

proving an underpayment, as discussed above, respondent must

prove that petitioner failed to report the gain on the sale of

its assets with the intent to conceal, mislead, or otherwise

prevent the collection of tax.    See Stoltzfus v. United States,
                              - 16 -

398 F.2d 1002, 1004 (3d Cir. 1968); Webb v. Commissioner, 394

F.2d 366, 377 (5th Cir. 1968), affg. T.C. Memo. 1966-81.

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

upon consideration of the entire record.   Gajewski v.

Commissioner, 67 T.C. 181, 199 (1976), affd. without published

opinion 578 F.2d 1383 (8th Cir. 1978).   Fraud will never be

presumed.   Beaver v. Commissioner, 55 T.C. 85, 92 (1970).     Fraud

may, however, be proved by circumstantial evidence because direct

proof of the taxpayer's intent is rarely available.   The

taxpayer's entire course of conduct may establish the requisite

fraudulent intent.   Stone v. Commissioner, 56 T.C. 213, 223-224

(1971); Otsuki v. Commissioner, 53 T.C. 96, 105-106 (1969).

     Intent may be inferred from various kinds of circumstantial

evidence, or "badges of fraud", including an understatement of

income, false statements or documents, concealment of assets or

covering up sources of income, and implausible or inconsistent

explanations of behavior.   Spies v. United States, 317 U.S. 492

(1943); Bradford v. Commissioner, 796 F.2d 303, 307 (9th Cir.

1986), affg. T.C. Memo. 1984-601.   In this case, respondent's

strongest evidence is petitioner's falsification of documents to

corroborate its version of the events in the year in issue and

other conduct during the preparation of petitioner's 1988 tax

return.

     Although a formal plan of liquidation was not required under

section 337, petitioner represented to the IRS that it had
                               - 17 -

adopted a formal plan of liquidation when it attached false

minutes to its 1988 tax return and did not report income from the

sale of assets to JSL.   Respondent argues that the false minutes

are evidence of an actual, intentional wrongdoing for the

specific purpose of evading taxes.

     Petitioner argues that the minutes are not evidence of fraud

but evidence of the shareholders' intention to comply with the

tax laws.    In support of its position, petitioner addresses the

backdated minutes and argues on brief:

     There were inaccuracies in the writing [minutes] which
     clearly indicated the plan was prepared after the fact
     and back-dated to appear as though it were prepared in
     anticipation of the liquidation. This, the
     Commissioner argues, is proof not only that no plan
     existed, but also of an intent to defraud the
     government. More likely it is simply what happens when
     a taxpayer attempts to prepare a tax sensitive and very
     technical document without benefit of counsel.
     Experienced counsel could have easily prepared the plan
     without the appearance of fraud by simply dating it
     currently and referring to an earlier meeting. The
     irony is that the law does not even require a written
     plan. All of this trouble arose from the efforts of
     one man attempting to properly satisfy what he thought
     was required of him under the law.

     We cannot accept petitioner's excuse for creation of the

false minutes.

     WCWC informed Briggs in December 1989 that ACT would owe a

substantial amount of taxes if ACT had not adopted a plan of

liquidation prior to or on the date of the sale to JSL.   Briggs

testified:

          Q But they [the accountants] showed you an ACT
     return in which there was a lot of tax due.
                               - 18 -

          A I don't recollect seeing one. I recollect that
     they said you have a liability on it--a big liability
     on it.

          Q   Okay.

          A And that is when I think everybody got back
     together and they got talking to each other up at
     Williams, Cox and Weidner and whatever in the heck
     their name is.

          Q When they told you there was a return with a
     lot of tax due, did that--that got everybody nervous
     and talking. True?

          A Well, I think it got--you know, when we raised
     hell with them and said, Wait a minute now, here. You
     were in here from ground floor and all the rest of that
     and everything. They went back and got talking amongst
     themselves, I think.

     After Briggs "raised hell" with WCWC, Turner sent to

Williams, his manager, a fax that stated in part:

     I believe you will agree that we gave them sound advice
     in October, 1988. If they did not follow through with
     the advice, they have a problem, because we did explain
     the options to them. Let me hear from you.

     ACT would not have had a substantial tax liability from the

JSL sale if it had liquidated in accordance with section 337.

WCWC's failure to inform the ACT shareholders about the timing

requirement of section 337, along with Briggs' anger at WCWC

because of the ACT tax liability and Turner's attempt to protect

WCWC's interests in the memorandum to Williams, convinces us that

ACT had not adopted a liquidation plan prior to or on the sale

date of ACT's assets to JSL.

     During the December 18, 1989, meeting, Turner informed

Briggs that minutes of a liquidation meeting were needed for
                               - 19 -

submission to the IRS with ACT's Form 1120 tax return.   Briggs

testified:

          Q Did Mr. Turner tell you or give the impression
     that he needed those documents [the minutes] in order
     to file the return?

          A Yes. They should have been filled out. He
     said they needed to be filled out, and he gave us a
     copy of them--really a format. * * *

     Turner subsequently gave Briggs a sample set of minutes to

be used for a corporate liquidation.    Briggs and Morris created

the false minutes for an October 24, 1988, 1:00 p.m. meeting

sometime between December 26, 1989, and January 16, 1990, with

their recently acquired information that the plan had to be

adopted on or before the sale date of its assets to JSL.

     Petitioner contends that the inaccuracies in the minutes are

"very technical".   The inaccuracies were not technical and

consisted of a false date and time for a meeting that never

occurred.    A mistaken date or time on a document does not alone

amount to fraud.    We recognize that, although creating documents

after an event may be reprehensible, "manufacturing" documents is

not tantamount to fraud unless there is a showing that the

information in the documents is essentially false.   See Sinko v.

Commissioner, T.C. Memo. 1967-45.    However, submitting false

documents to the IRS is an indication of fraud.   See Stephenson

v. Commissioner, 79 T.C. 995, 1007 (1982), affd. 748 F.2d 331

(6th Cir. 1984).    Where, as here, a taxpayer has knowledge that

documents are false and submits income tax returns to the IRS
                               - 20 -

that are in conformity with the false documents, there is clear

and convincing evidence of fraud.   See Cantor v. Commissioner,

T.C. Memo. 1957-173.

     Petitioner relies on Badias & Seijas, Inc. v. Commissioner,

T.C. Memo. 1977-118, to support its position that the backdated

and erroneous minutes should be overlooked when the motivation

for preparing the minutes was mistake or misunderstanding.      In

Badias & Seijas, a corporation sold its sole asset, a restaurant.

The shareholder of the corporation made several errors on the

final tax return for the corporation.     The errors included

failing to indicate that the corporation had sold its sole asset,

failing to designate the tax return as a final return, and

listing the shareholder as a 50-percent shareholder when he was

the 100-percent shareholder.   The Court determined that the

corporation had adopted an informal plan of liquidation

notwithstanding the errors on the tax return, because the errors

did not affect the actual events constituting adoption of the

plan.

     The instant case is distinguishable from Badias & Seijas.

The taxpayer's actions in Badias & Seijas conformed to section

337, even if the documents did not.     In this case, the minutes

are not merely an inaccurate representation of actual events;

they are a fabrication of events.   Briggs knew that he did not

participate in a vote to liquidate ACT on or before the sale date

of the assets to JSL, but he prepared minutes to the contrary.
                               - 21 -

Briggs gave the false minutes to WCWC with the knowledge that the

false information would be used to prepare ACT's 1988 Form 1120

tax return for submission to the IRS.

     Respondent has met her burden of proof by clear and

convincing evidence that petitioner acted with the intention to

evade taxes.    Accordingly, we sustain respondent's determination

that petitioner is liable for the addition to tax for fraud under

section 6653(b)(1).

     Respondent determined an addition to tax for 1988 under

section 6661.   Petitioner has the burden of proof on this issue.

Rule 142(a).    Petitioner did not present any evidence or argument

that would avoid application of this addition to tax.

     Because we have upheld respondent's fraud determination, we

need not examine the alternative additions to tax.

                                          Decision will be entered

                                     for respondent.
