                        T.C. Memo. 2007-17



                      UNITED STATES TAX COURT



                   ANDREW CHOOK, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 4526-05.              Filed January 29, 2007.



     Thomas Stylianos, Jr., for petitioner.

     Michael R. Fiore, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     HAINES, Judge:   Respondent determined a deficiency in

petitioner’s 2002 Federal income tax of $171,823 and an accuracy-

related penalty under section 6662(a) of $34,365.1   The issues


     1
        Unless otherwise indicated, all section references are to
the Internal Revenue Code, as amended, and all Rule references
are to the Tax Court Rules of Practice and Procedure. All
                                                   (continued...)
                                - 2 -

for decision are:    (1) Whether petitioner received but did not

report income in the form of nonemployee compensation paid to him

by Unwrapped, Inc. (Unwrapped); (2) whether petitioner is liable

for a fraud penalty under section 6663(a),2 or in the

alternative, an accuracy-related penalty under section 6662(a);

and (3) whether petitioner is liable for a penalty under section

6673(a)(1)(C) for unreasonable failure to pursue available

administrative remedies.

                           FINDINGS OF FACT

     Petitioner did not cooperate with respondent in preparing a

stipulation of facts.    At the time he filed his petition,

petitioner resided in Brockton, Massachusetts.

     During 2002, petitioner operated Liberty Temporary Agency

(Liberty Temp).3    While the nature of Liberty Temp is unclear, it

appears that Liberty Temp provided temporary workers to

Unwrapped, Inc. (Unwrapped), a “production stitching” company.

During 2002, Unwrapped issued checks totaling $447,084 to

“Liberty Temp--D/B/Andrew Chook”, which petitioner endorsed and


     1
      (...continued)
amounts are rounded to the nearest dollar.
     2
        Respondent asserted that petitioner was liable for a
fraud penalty under sec. 6663(a) in an amendment to answer,
discussed infra.
     3
        On Sept. 23, 1993, an employer identification number was
assigned to Liberty Temp, and a Notice of New Employer
Identification Number Assigned was mailed to Liberty Temp and
Richard Nguon.
                                - 3 -

either cashed or deposited into an unidentified account.

Unwrapped issued a Form 1099-MISC, Miscellaneous Income, to

“Liberty Temp.-D/B/Andrew Chook” for 2002, reporting nonemployee

compensation of $447,084.

     Petitioner timely filed a Federal income tax return for

2002.    Petitioner reported total income of $14,400, total tax of

zero, total payments of $4,055, and requested a refund of $4,055.

Petitioner did not report the money received from Unwrapped, nor

did he claim any deductions related to the operation of Liberty

Temp.

     On December 6, 2004, respondent issued petitioner a notice

of deficiency for 2002.   Based on information reported by

Unwrapped, respondent determined that petitioner received but

failed to report income of $447,084 from nonemployee

compensation.    Respondent determined a deficiency in petitioner’s

2002 Federal income tax of $171,823 and an accuracy-related

penalty under section 6662(a) of $34,365.

     In response to the notice of deficiency, petitioner filed a

petition with this Court on March 7, 2005.

     Despite the requirements of the United States Tax Court’s

Rules of Practice and Procedure, the Court’s standing pretrial

order,4 and respondent’s repeated attempts to meet with


     4
        The standing pretrial order, along with the notice
setting case for trial, was filed on Oct. 6, 2005. The standing
                                                   (continued...)
                               - 4 -

petitioner and exchange information, petitioner failed to

cooperate in the preparation of this case for trial.5

Additionally, petitioner failed to respond to respondent’s

requests for admission.   As a result, the following facts were

deemed admitted under Rule 90(c):

     (1) Checks from Unwrapped in the aggregate amount of

$447,084 were made payable to petitioner during 2002;

     (2) Petitioner endorsed and deposited or cashed checks from

Unwrapped in the aggregate amount of $447,084 during 2002;

     (3) During 2002, petitioner received taxable income from the

operation of Liberty Temp;



     4
      (...continued)
pretrial order stated in pertinent part:

          To facilitate an orderly and efficient disposition
     of all cases on the trial calendar, it is hereby

          ORDERED that all facts shall be stipulated to the
     maximum extent possible. All documentary and written
     evidence shall be marked and stipulated in accordance
     with Rule 91(b) * * *. If a complete stipulation of
     facts is not ready for submission at the commencement
     of the trial or at such other time ordered by the
     Court, and if the Court determines that this is the
     result of either party’s failure to fully cooperate in
     the preparation thereof, the Court may order sanctions
     against the uncooperative party. Any documents or
     materials which a party expects to utilize * * *, but
     which are not stipulated, shall be identified in
     writing and exchanged by the parties at least 14 days
     before the first day of the trial session. * * *
     5
        Petitioner provided respondent with limited documents,
but only after the Court granted respondent’s motion to compel
production of documents.
                                - 5 -

     (4) Petitioner did not report the income he received from

the operation of Liberty Temp on his 2002 return;

     (5) Because petitioner did not report the income received

from the operation of Liberty Temp on his 2002 return, he

underpaid the tax required to be shown on that return;

     (6) The underpayment of tax required to be shown was

attributable to fraud;

     (7) Petitioner unreasonably failed to pursue available

administrative remedies with respondent; and

     (8) Respondent requested an informal interview with

petitioner, but petitioner refused.

     At no point did petitioner move to withdraw or modify the

deemed admissions.

     To reflect the deemed admissions, respondent filed an

amendment to answer asserting that petitioner was liable for a

fraud penalty under section 6663(a) in the alternative to the

accuracy-related penalty under section 6662(a) asserted in the

notice of deficiency.    Respondent also filed a motion to impose a

penalty under section 6673(a)(1)(C) for petitioner’s unreasonable

failure to pursue available administrative remedies.

     On March 13, 2006, the day of calendar call, petitioner

filed a motion to continue.   Petitioner’s motion was denied.
                                - 6 -

                              OPINION

I.   Unreported Income From Liberty Temp

     Generally, the taxpayer bears the burden of proving the

Commissioner’s determinations incorrect.   Rule 142(a)(1); Welch

v. Helvering, 290 U.S. 111, 115 (1933).    If the taxpayer

introduces credible evidence with respect to any factual issue

relevant to ascertaining the taxpayer’s tax liability, the

Commissioner bears the burden of proof with respect to that

issue.   Sec. 7491(a)(1).   However, the burden of proof will not

shift to the Commissioner where the taxpayer fails to maintain

records in accordance with the Internal Revenue Code or fails to

cooperate with reasonable requests made by the Commissioner for

witnesses, information, documents, meetings, and interviews.

Sec. 7491(a)(2)(B).

     Section 7491(a)(1) does not shift the burden of proof to

respondent with respect to petitioner’s liability for a

deficiency in tax because petitioner has not produced credible

evidence with respect to that issue, nor has petitioner

maintained records or cooperated with respondent’s reasonable

requests.   Therefore, petitioner bears the burden of proving

incorrect respondent’s determination that $447,084 received from

Unwrapped is included in petitioner’s income in 2002.   Petitioner

has not met this burden.
                                 - 7 -

     Petitioner testified that he was merely an intermediary and

that Richard Nguon (Mr. Nguon), a friend who lived in Cambodia,

owned Liberty Temp.   Petitioner further testified that he used

the money received from Unwrapped to pay Liberty Temp’s employees

and to pay himself $200 per week, and that he sent any remaining

money to Mr. Nguon by wire transfer or hand delivery.6

     Petitioner did not produce any documents or other evidence

to corroborate his testimony.7    Petitioner asserted that his

failure to produce such evidence was the result of a several-week

trip he took to Cambodia immediately before trial to be with his

dying aunt.   Petitioner argued that, had the Court granted his

motion to continue, he could have produced additional evidence or




     6
        Petitioner does not argue explicitly, if at all, that
money paid to Liberty Temp’s employees and to those who hand-
delivered money to Mr. Nguon is deductible as business expenses.
Under the Cohan rule, if a claimed expense is deductible, but the
taxpayer is unable to fully substantiate the amount, the Court is
permitted to make an approximation of an allowable amount. Cohan
v. Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930). However,
the taxpayer must provide at least some evidence from which to
estimate a deductible amount. Vanicek v. Commissioner, 85 T.C.
731, 743 (1985). Other than his unsupported testimony,
petitioner provided no evidence to establish that any expenses
were deductible. Petitioner provided no evidence from which we
may estimate a deductible amount.
     7
        Petitioner cites the Notice of New Employer
Identification Number Assigned that was mailed to Liberty Temp
and Mr. Nguon on Sept. 23, 1993, as evidence that Mr. Nguon was
the true owner of Liberty Temp during 2002. See supra note 3.
This document does not establish Mr. Nguon’s ownership, nor does
it support any of petitioner’s other claims.
                                - 8 -

secured the testimony of Mr. Nguon.     Petitioner’s explanation is

unpersuasive.

     Petitioner filed his petition on March 7, 2005, and the

Court’s notice setting case for trial on March 13, 2006, and

standing pretrial order were filed October 6, 2005.    Petitioner

had over 1 year from the time of filing his petition and over 5

months after the case was set for trial to prepare his case.     His

absence in the weeks leading up to trial does not excuse his

failure to prepare for trial.   Additionally, petitioner testified

that he did not keep any business records.    It is difficult to

understand how, if no records were kept, more time would have

allowed petitioner to produce additional documents to support his

testimony.

     We do not find petitioner’s unsupported and self-serving

testimony to be credible.   Niedringhaus v. Commissioner, 99 T.C.

202, 219-220 (1992); Tokarski v. Commissioner, 87 T.C. 74, 77

(1986).   Additionally, petitioner was deemed to have admitted

that the money received from Unwrapped was taxable income to him.

Therefore, we sustain respondent’s determination and find that

petitioner received but failed to report income of $447,084,

resulting in a deficiency in petitioner’s 2002 Federal income tax

of $171,823.
                                  - 9 -

II.   Fraud Penalty Under Section 6663(a)

      Section 6663(a) provides:    “If any part of any underpayment

of tax required to be shown on a return is due to fraud, there

shall be added to the tax an amount equal to 75 percent of the

portion of the underpayment which is attributable to fraud.”       The

Commissioner bears the burden of proving by clear and convincing

evidence that an underpayment of tax was attributable to fraud.

Sec. 7454(a); Rule 142(b).   The Commissioner may satisfy this

burden by relying on deemed admissions.     Marshall v.

Commissioner, 85 T.C. 267, 272-273 (1985); Doncaster v.

Commissioner, 77 T.C. 334, 336-337 (1981).

      Petitioner was deemed to have admitted that he underpaid the

tax required to be shown on his 2002 return and that the

underpayment was attributable to fraud.     These deemed admissions

are sufficient for respondent to carry his burden of proving by

clear and convincing evidence that petitioner’s underpayment of

tax was attributable to fraud.     See Marshall v. Commissioner,

supra at 272-273; Doncaster v. Commissioner, supra at 336-337.

Additionally, petitioner kept no books or records and failed to

cooperate in the audit of his return, both of which are indicia

of fraud.   See, e.g., Bradford v. Commissioner, 796 F.2d 303, 308

(9th Cir. 1986), affg. T.C. Memo. 1984-601; Smith v.

Commissioner, 91 T.C. 1049, 1059-1060 (1988), affd. 926 F.2d 1470
                              - 10 -

(6th Cir. 1991).   Therefore, we find that petitioner is liable

for a fraud penalty under section 6663(a) of $128,867.8

III. Penalty Under Section 6673(a)(1)(C)

     Section 6673(a)(1)(C) authorizes the Court to require a

taxpayer to pay the United States a penalty in an amount not to

exceed $25,000 whenever it appears to the Court that the taxpayer

unreasonably failed to pursue available administrative remedies.

A penalty under section 6673(a)(1)(C) may be appropriate if a

taxpayer fails to comply with the Commissioner’s requests for

records made prior to trial when, had he produced those records

when requested, there would have been fewer disputed issues at

the commencement of trial.   See Suri v. Commissioner, T.C. Memo.

2004-71 ($1,000 penalty imposed where the taxpayer repeatedly

failed to meet with respondent’s counsel or provide relevant

information that ultimately led to the settlement of various

items of income), affd. 96 AFTR 2d 2005-6526 (2d Cir. 2005);

Edwards v. Commissioner, T.C. Memo. 2003-149 ($24,000 penalty

imposed where the taxpayer took frivolous and groundless

positions and unreasonably failed to pursue available

administrative remedies), affd. 119 Fed. Appx. 293 (D.C. Cir.

2005).   A penalty is also appropriate under section 6673(a)(1)(C)



     8
        $171,823 (deficiency/underpayment) x 0.75 = $128,867.25.
Because we find petitioner to be liable for a fraud penalty under
sec. 6663(a), we need not determine whether petitioner is liable
for an accuracy-related penalty under section 6662(a).
                              - 11 -

where a taxpayer’s procrastination has increased the costs of

litigation.   See Griest v. Commissioner, T.C. Memo. 1995-165

($1,000 penalty imposed where a case was settled at the time of

trial after the taxpayer substantiated his basis to reduce sales

proceeds determined to be income).

     Respondent filed a motion to impose a penalty under section

6673(a)(1)(C) for petitioner’s unreasonable failure to pursue

available administrative remedies.     The record in this case

establishes repeated failures of petitioner to meet with

respondent and to provide information relevant to unreported

income at issue.   Had petitioner provided such information, this

case might have been susceptible to settlement, which would have

decreased the costs of litigation.     Additionally, petitioner was

deemed to have admitted that he unreasonably failed to pursue

available administrative remedies.     Therefore, we shall grant

respondent’s motion and require petitioner to pay to the United

States a penalty of $1,000.

     To reflect the foregoing,


                                           An appropriate order

                                     and decision will be entered.
