                        T.C. Memo. 1997-415



                      UNITED STATES TAX COURT



               CHARLES E. CAMPBELL, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No.   10421-95              Filed September 18, 1997.


     Charles E. Campbell, pro se.

     Dennis M. Kelly, for respondent.




                        MEMORANDUM OPINION



     LARO, Judge:   Respondent moves pursuant to Rule 1211 for an

order granting summary judgment in respondent's favor.


     1
        Rule references are to the Tax Court Rules of Practice
and Procedure. Section references are to the Internal Revenue
Code in effect for the years in issue. Unless otherwise
indicated, dollar amounts are rounded to the nearest dollar.
                                   - 2 -


Respondent's motion for summary judgment is based on matters

deemed admitted by reason of petitioner's failure to respond to

requests for admission served by respondent under Rule 90.

Respondent determined deficiencies for 1987 through 1989 based on

petitioner's failure to file Federal income tax returns and

report gross income received from the following activities:

gambling, sale of illegal narcotics, and the purchase, repair,

and sale of used automobiles.        The resulting deficiencies in

income tax and additions thereto are as follows:

                                            Additions to Tax
                             Sec.               Sec.         Sec.        Sec.
Year        Deficiency   6653(b)(1)(A)     6653(b)(1)(B)   6653(b)(1)   6651(f)

1987        $23,320        $17,490         50% of the        ---         ---
                                            interest due
                                             on $23,320
1988        18,554           ---                ---        $13,916       ---
1989         9,658           ---                ---          ---        $7,244


Respondent asserts in the alternative that petitioner is liable

for the additions to tax under sections 6651(a) and 6653(a)(1)(A)

and (B) for 1987, sections 6651(a) and 6653(a)(1) for 1988, and

section 6651(a) for 1989.

       Based on matters deemed admitted, respondent claims that

there is no genuine issue of material fact as to either

petitioner's liability for deficiencies in his 1987 through 1989

Federal income tax or petitioner's liability for the fraud

additions under sections 6653(b)(1)(A) and (B) for 1987, section
                               - 3 -


6653(b)(1) for 1988, and section 6651(f) for 1989.   We hold for

respondent on all issues.

                            Background

     Petitioner and his spouse Angela M. Campbell (Ms. Campbell)

filed joint Federal income tax returns for 1983 through 1986.

Despite demonstrated knowledge of the requirement to file tax

returns, petitioner and Ms. Campbell failed to file Federal

income tax returns for 1987 through 1989.   Using the expenditure

method for reconstruction of income, respondent determined that

the gross income of petitioner and Ms. Campbell was $126,846,

$108,438, and $47,969 for 1987 through 1989, respectively.

Respondent determined that petitioner's community property share

for the respective years was $63,423, $54,219, and $23,984.   On

June 15, 1995, petitioner petitioned the Court for a

redetermination of respondent's determination.   Petitioner was

incarcerated at the Montgomery County jail in Conroe, Texas, when

he petitioned the Court.

     On April 19, 1996, respondent filed a motion for continuance

of trial on the ground that petitioner was undergoing criminal

prosecution, and petitioner's criminal trial was scheduled to

commence on May 20, 1996.   Contemporaneously, respondent filed a

motion to consolidate for trial, briefing, and Opinion

petitioner's case at docket number 10421-95 with Ms. Campbell's

case at docket number 10419-95.   Petitioner's and Ms. Campbell's
                                  - 4 -


cases were set for separate trials at the trial session beginning

June 10, 1996.    The Court granted both of respondent's motions,

and the trial was rescheduled for the trial session beginning on

November 12, 1996.    In or around May 1996, petitioner was found

guilty of a felony crime and sentenced to 10 years' imprisonment

in a Federal correctional facility.

     On August 26, 1996, pursuant to Rule 90, respondent served

upon petitioner and filed with the Court requests for admission.

The admissions requested were, in pertinent part, as follows:

          1. [Petitioner] did not file federal income tax
     returns when they were due for the taxable years 1987,
     1988, and 1989.

          2. [Petitioner has] not filed federal income tax
     returns at any time for the taxable years 1987, 1988,
     and 1989.

          *       *       *          *        *       *       *


          4. Prior to 1987, [petitioner and his spouse]
     filed joint federal income tax returns for the taxable
     years 1983, 1984, 1985, and 1986.

          *       *       *          *        *       *       *

          6. During the taxable years 1987, 1988, and 1989,
     [petitioner was] engaged in the following cash
     activities:
          a. professional cardplayer;
          b. gambling;
          c. sale of illegal narcotics; and
          d. repair and sales of used automobiles.

     *        *       *       *           *       *       *

          12. On or about July 22, 1988, approximately
     $17,841.00 in cash was seized from [petitioner's]
                            - 5 -


residence at 113 Brandon Road, Conroe, Texas by law
enforcement officials.

     13. The money seized on July 22, 1988, was owned
by [petitioner and his spouse].

*      *       *        *           *    *       *

     16. [Petitioner and his spouse] wrote checks in
the total amount of $30,246.06 which were paid during
1987 out of [petitioner's] checking account #055-005-
33836 at Texas Commerce Bank.

     17. [Petitioner and his spouse] wrote checks in
the total amount of $56,111.82 which were paid during
1988 out of [petitioner's] checking account #055-005-
33836 at Texas Commerce Bank.

     18. [Petitioner and his spouse] wrote checks in
the total amount of $27,291.87 which were paid during
1987 out of [petitioner's] checking account #055-005-
34271 at Texas Commerce Bank.

     19. [Petitioner and his spouse] wrote checks in
the total amount of $11,633.38 which were paid during
1988 out of [petitioner's] checking account #055-005-
34271 at Texas Commerce Bank.

     20. [Petitioner and his spouse] wrote checks in
the total amount of $23,545.40 which were paid during
January, 1989 out of [petitioner's] checking account
#055-005-33836 at Texas Commerce Bank.

     21. [Petitioner and his spouse] wrote checks in
the total amount of $452.00 which were paid during
January, 1989, out of [petitioner's] checking account
#055-005-34271 at Texas Commerce Bank.

     22. [Petitioner and his spouse] had no nontaxable
sources of income during the taxable years 1987, 1988,
and 1989 * * *.

     23. The total unreported gross income of
[petitioner and his spouse] for the taxable year 1987
is $126,845.94.
                            - 6 -


     24. [Petitioner's] share of the total unreported
gross income for 1987, under the community property
laws of Texas, is $63,422.97.

     25. The total unreported gross income for
[petitioner and his spouse] for the taxable year 1988
is $108,438.07.

     26. [Petitioner's] share of the total unreported
gross income for 1988, under community property laws of
Texas, is $54,219.04.

     27. The total unreported taxable income for
[petitioner and his spouse] for the taxable year 1989
is $47,968.80.

     28. [Petitioner's] share of the total unreported
gross income [for 1989], under the community property
laws of Texas, is $23,984.40.

*      *       *        *           *    *       *

     32. [Petitioner's] correct tax liability,
including self-employment tax, for the taxable years
1987, 1988, and 1989, is $23,320.00, $18,554.00, and
$9,658.00, respectively.

      33. [Petitioner has] not made any payments of tax
for the income tax liabilities due for 1987, 1988, or
1989.

     34. [Petitioner's] failure to file a federal
income tax return for each of the taxable years 1987,
1988, and 1989, was fraudulent with the intent to evade
the payment of taxes on taxable income earned in each
respective year.

     35. [Petitioner] failed to maintain complete and
adequate records of the activities [he] conducted in
cash during the taxable years 1987, 1988, and 1989,
with the intent to evade the payment of taxes on such
business transactions in each respective year.

     36. [Petitioner] failed to produce any records of
[his] business or personal activities for respondent
during the examination of [his] income tax liabilities
for the taxable years 1987, 1988, and 1989.
                               - 7 -


          37. [Petitioner's] failure to produce any records
     of [his] business or personal activities for respondent
     during the examination of [petitioner's] income tax
     liabilities for the taxable years 1987, 1988, and 1989
     was fraudulent with the intent to evade the payment of
     taxes for each respective year.

Petitioner failed to respond to respondent's requests for

admission as required by Rule 90(c).

     At the trial session beginning November 12, 1996, there was

no appearance by or on behalf of petitioner or Ms. Campbell.

Respondent submitted to the Court a decision document with

respect to Ms. Campbell and informed the Court that petitioner

remained incarcerated.   Respondent also informed the Court that

petitioner and respondent had reached a basis for settlement,

that a decision document had been sent to petitioner, and that

petitioner had subsequently mailed the decision document back to

respondent, and respondent was awaiting delivery.   Upon

respondent's request for additional time to await delivery of

decision document, the Court ordered that petitioner's and Ms.

Campbell's cases be severed and that petitioner's case be

continued with jurisdiction retained.

     Petitioner had not in fact mailed the proposed decision

document and settlement computations to respondent.   During late

November and December of 1996, respondent repeatedly attempted to

contact petitioner and Ms. Campbell.    Petitioner did not respond

to respondent's correspondence or phone calls.   Following

respondent's status report dated January 28, 1997, the Court
                               - 8 -


ordered that jurisdiction is no longer retained by the Division

and that petitioner's case be restored to the general docket.

The case was set for trial at the trial session beginning on

September 15, 1997.

     On August 8, 1997, respondent filed a motion for summary

judgment moving the Court that, based on matters deemed admitted

by petitioner as set forth in respondent's requests for

admission, we find petitioner liable for the deficiencies and

additions to tax as shown in the notice of deficiency.    In the

event that the Court denies respondent's motion for summary

judgment, respondent also contemporaneously filed a motion for

writ of habeas corpus and testificandum to secure petitioner's

presence at the September 15, 1997, trial session.   On August 11,

1997, the Court ordered a response from petitioner to

respondent's motion for summary judgment to be received on or

before August 18, 1997.   Petitioner has not complied with the

Court's order.   Petitioner has not filed any motion to withdraw

the deemed admissions pursuant to Rule 90(f).

                            Discussion

     Summary judgment is intended to expedite litigation and

avoid unnecessary and expensive trials of phantom factual issues.

Kroh v. Commissioner, 98 T.C. 383, 390 (1992); Shiosaki v.

Commissioner, 61 T.C. 861, 862 (1974).   Summary judgment is

appropriate
                               - 9 -


     if the pleadings, answers to interrogatories,
     depositions, admissions, and any other acceptable
     materials, together with the affidavits, if any, show
     that there is no genuine issue as to any material fact
     and that a decision may be rendered as a matter of law.
     [Rule 121(b).]

Because summary adjudication decides an issue against a party

before trial, we grant such a remedy cautiously and sparingly,

and only after carefully ascertaining that the moving party has

met all requirements for summary adjudication.     Associated Press

v. United States, 326 U.S. 1, 6 (1945); Espinoza v. Commissioner,

78 T.C. 412, 416 (1982).

     The Court will not resolve disagreements over material

factual issues through summary adjudication.     Espinoza v.

Commissioner, supra at 416.   The moving party bears the burden of

proving that there is no genuine issue of material fact, and

factual inferences are viewed in a light most favorable to the

nonmoving party.   United States v. Diebold, Inc., 369 U.S. 654,

655 (1962); Kroh v. Commissioner, supra at 390.     A fact is

material if it "tends to resolve any of the issues that have been

properly raised by the parties."   10A Wright & Miller, Federal

Practice and Procedure: Civil 2d, sec. 2725, at 93 (2d ed. 1983).

A.   Deficiencies for 1987 Through 1989

     The first issue is whether petitioner is liable for the

deficiencies.   Respondent asks the Court to hold as a matter of

law that petitioner owes the deficiencies as determined in the

notice of deficiency.   The deficiencies are in the amounts of
                                - 10 -


$23,320, $18,554, and $9,658 for 1987 through 1989, respectively.

Under Rule 90(c), matters set forth in requests for admission are

deemed admitted unless an answer or objection is served on the

requesting party "within 30 days after service of the request or

within such shorter or longer time as the Court may allow".

Since petitioner has failed to respond to respondent's requests,

the facts as set forth therein are deemed admitted and are a

sufficient basis on which to grant respondent's motion for

summary judgment.     Coninck v. Commissioner, 100 T.C. 495, 496

(1993); Marshall v. Commissioner, 85 T.C. 267, 271-272 (1985);

Freedson v. Commissioner, 65 T.C. 333, 334-336 (1975), affd. 565

F.2d 954 (5th Cir. 1978).

     Section 61 defines gross income as income from whatever

source derived.     The Supreme Court has held that when earnings

are acquired, lawfully or unlawfully, without a consensual

recognition of an obligation to repay, there is income to the

taxpayer.   James v. United States, 366 U.S. 213, 219 (1961).       In

James, the Supreme Court stated that "This standard brings

wrongful appropriations within the broad sweep of 'gross

income'".   Id.

     Petitioner has admitted facts which overwhelmingly establish

substantial, intentional omissions of taxable income for 1987

through 1989.     The admissions establish that petitioner was

engaged in activities such as gambling, sales of illegal
                             - 11 -


narcotics, and car sales and repairs, and that petitioner

received unreported income from these activities.   Specifically,

petitioner is deemed to have admitted under Rule 90(c) that:

          6. During the taxable years 1987, 1988, and 1989,
     [petitioner was] engaged in the following cash
     activities:
          a. professional cardplayer;
          b. gambling;
          c. sale of illegal narcotics; and
          d. repair and sales of used automobiles.

     *      *       *        *        *       *       *

          23. The total unreported gross income of
     [petitioner and his spouse] for the taxable year 1987
     is $126,845.94.

          24. [Petitioner's] share of the total unreported
     gross income for 1987, under the community property
     laws of Texas, is $63,422.97.

          25. The total unreported gross income for
     [petitioner and his spouse] for the taxable year 1988
     is $108,438.07.

          26. [Petitioner's] share of the total unreported
     gross income for 1988, under community property laws of
     Texas, is $54,219.04.
          27. The total unreported taxable income for
     [petitioner and his spouse] for the taxable year 1989
     is $47,968.80.

          28. [Petitioner's] share of the total unreported
     gross income [for 1989], under the community property
     laws of Texas, is $23,984.40.

     *      *       *        *        *       *       *

          32. [Petitioner's] correct tax liability,
     including self-employment tax, for the taxable years
     1987, 1988, and 1989, is $23,320.00, $18,554.00, and
     $9,658.00, respectively.
                              - 12 -


The deemed admissions establish that there is no genuine issue of

material fact with respect to the underlying deficiencies and

support respondent's determination in this regard.    Marshall v.

Commissioner, supra at 271-272; Freedson v. Commissioner, supra

at 334-336.   We sustain respondent's determination of the

deficiencies for 1987 through 1989 as shown in the notice of

deficiency.

B.   Additions to Tax for Fraud

     The second issue is whether petitioner is liable for the

additions to tax for fraud under section 6653(b)(1)(A) and (B)

for 1987, section 6653(b)(1) for 1988, and section 6651(f) for

1989.   For 1987, section 6653(b)(1)(A) imposes an addition to tax

equal to 75 percent of the portion of the underpayment

attributable to fraud, and section 6653(b)(1)(B) imposes an

addition to tax equal to 50 percent of the interest payable under

section 6601 with respect to that portion.   For 1988, section

6653(b)(1) imposes an addition to tax equal to 75 percent of the

portion of an underpayment that is due to fraud.    For 1989,

section 6651(f) imposes an addition to tax of similar proportion

where a failure to file a return is fraudulent.    Because these

provisions are analyzed similarly as to the determination of

fraudulent intent, we consolidate our discussion of fraud

determinations.   Clayton v. Commissioner, 102 T.C. 632, 653

(1994).
                              - 13 -


     The additions to tax for fraud are civil sanctions "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).    Fraud is defined as

intentional wrongdoing on the part of the taxpayer with the

specific purpose of evading a tax believed to be owing.      Mitchell

v. Commissioner, 118 F.2d 308, 310 (5th Cir. 1941); Petzoldt v.

Commissioner, 92 T.C. 661, 698 (1989).    Section 7454 states in

pertinent part that "In any proceeding involving the issue

whether the petitioner has been guilty of fraud with intent to

evade tax, the burden of proof in respect of such issue shall be

upon the Secretary."   Rule 142(b) requires that this burden be

carried by clear and convincing evidence.    Castillo v.

Commissioner, 84 T.C. 405, 408 (1985).

     Under section 6653(b)(1)(A) for 1987 and section 6653(b)(1)

for 1988, the fraud addition is imposed where there is an

underpayment of tax required to be shown on the return that is

due to fraud.   Fraud is shown by proof that the taxpayer intended

to conceal, mislead, or otherwise prevent the collection of his

or her taxes.   Spies v. United States, 317 U.S. 492, 499 (1943);

Stoltzfus v. Unites States, 398 F.2d 1002, 1005 (3d Cir. 1968);

Webb v. Commissioner, 394 F.2d 366, 377 (5th Cir. 1968), affd.
                               - 14 -


T.C. Memo. 1966-81; Rowlee v. Commissioner, 80 T.C. 1111, 1123

(1983).

1.   Section 6653 Underpayment of Tax for 1987 and 1988

     To impose liability under section 6653(b)(1)(A) and (B) for

1987 and section 6653(b)(1) for 1988, respondent must first prove

that there has been an underpayment of taxes for the years in

issue.    Lee v. United States, 466 F.2d 11, 16-17 (5th Cir. 1972);

Plunkett v. Commissioner, 465 F.2d 299, 303 (7th Cir. 1972),

affg. T.C. Memo. 1970-274.   Section 6653(c)(1) defines

"underpayment" as a deficiency as defined in section 6211, except

that in making the deficiency calculation under section 6211,

section 6653(c)(1) states that "the tax shown on a return

referred to in section 6211(a)(1)(A) shall be taken into account

only if such return was filed on or before the last day

prescribed for the filing of such return".

     Petitioner failed to file Federal income tax returns for

1987 and 1988.   The deemed admissions establish that petitioner's

tax liabilities for 1987 and 1988 are $23,320 and $18,554,

respectively.    Since for purposes of sec. 6653(c)(1) "a taxpayer

will automatically create an 'underpayment' in the amount of the

correct tax simply because he or she files an untimely return",

we conclude that petitioner underpaid his taxes in 1987 and 1988.

See Emmons v. Commissioner, 92 T.C. 342, 349 (1989), affd. 898

F.2d 50 (5th Cir. 1990).
                                - 15 -


2.   Fraudulent Intent

      Under section 6653(b)(1)(A) for 1987, section 6653(b)(1) for

1988, and section 6651(f) for 1989, respondent must show that

petitioner intended to conceal, mislead, or otherwise prevent the

collection of taxes.     Stoltzfus v. United States, supra at 1004;

Webb v. Commissioner, 394 F.2d 366, 377 (5th Cir. 1968), affg.

T.C. Memo. 1966-81; Rowlee v. Commissioner, supra at 1123.

Because direct proof of a taxpayer's intent is rarely available,

fraud may be proven by circumstantial evidence, and reasonable

inferences may be drawn from the relevant facts.    Spies v. United

States, supra at 499; Stephenson v. Commissioner, 79 T.C. 995,

1006 (1982), affd. 748 F.2d 331 (6th Cir. 1984); Collins v.

Commissioner, T.C. Memo. 1994-409.

      Because matters deemed admitted pursuant to Rule 90 are

conclusively established and may be sufficient to support the

granting of a motion for summary judgment, respondent may

establish fraud by relying on petitioner's deemed admissions.

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

v. Commissioner, 81 T.C. 644, 651 (1983); Doncaster v.

Commissioner, 77 T.C. 334, 336 (1981).    Petitioner is deemed to

have admitted under Rule 90(c) that

     34. [Petitioner's] failure to file a federal income tax
return for each of the taxable years 1987, 1988, and 1989, was
fraudulent with the intent to evade the payment of taxes on
taxable income earned in each respective year.
     35. [Petitioner] failed to maintain complete and adequate
records of the activities [he] conducted in cash during the
                               - 16 -


taxable years 1987, 1988, and 1989, with the intent to evade the
payment of taxes on such business transactions in each respective
year.

     36. [Petitioner] failed to produce any records of [his]
business or personal activities for respondent during the
examination of [his] income tax liabilities for the taxable years
1987, 1988, and 1989.

     37. [Petitioner's] failure to produce any records of [his]
business or personal activities for respondent during the
examination of [petitioner's] income tax liabilities for the
taxable years 1987, 1988, and 1989 was fraudulent with the intent
to evade the payment of taxes for each respective year.

     In support of a finding of fraud, courts have relied on a

number of indicia of fraud in deciding section 6653(b) and

section 6651(f) cases.   Indicia of fraud include: (1) A pattern

of understatement of income, (2) maintaining inadequate books and

records, (3) failing to file tax returns, (4) giving implausible

or inconsistent explanations of behavior, (5) concealing assets,

(6) failing to cooperate with taxing authorities, (7) engaging in

illegal activities, (8) attempting to conceal illegal activities,

(9) dealing in cash, and (10) failing to make estimated tax

payments.    Recklitis v. Commissioner, 91 T.C. 874, 910 (1988).

Although no single factor is necessarily dispositive on the issue

of fraud, the existence of several indicia is persuasive

circumstantial evidence.    Petzoldt v. Commissioner, 92 T.C.

at 700.     Respondent argues that through the deemed admissions

fraud is clearly and convincingly established by petitioner's

conduct of dealing in cash, petitioner's failure to file tax

returns and report income earned, and petitioner's failure to
                                - 17 -


maintain records of his business activities or produce any

records to respondent during the examination.    We agree with

respondent.   Respondent, through the deemed admissions, has

affirmatively shown various indicia of fraud committed by

petitioner.   First, petitioner's understatement of income in 1987

through 1989 indicates fraud.    Through the deemed admitted facts,

respondent has established that over a 3-year period petitioner

engaged in a pattern of concealing substantial amounts of income.

Petitioner received substantial income from his involvement in

gambling activities, the sale of illegal narcotics, and the sale

and repair of used cars.   Petitioner has admitted that he and

Ms. Campbell had unreported gross income in the amounts of

$126,846, $108,438, and $47,969 for 1987 through 1989,

respectively.   This is strong evidence of an intent to evade tax.

Merritt v. Commissioner, 301 F.2d 484, 487 (5th Cir. 1962), affg.

T.C. Memo. 1959-172.

     Second, failure to maintain adequate books and records and

failure to produce business records during the examination

process are evidence of fraud.    The deemed admissions in

pertinent part establish that petitioner

     failed to maintain complete and adequate records of the
     activities [he] conducted in cash during the taxable
     years 1987, 1988, and 1989 * * * [and that petitioner]
     failed to produce any records of [his] business or
     personal activities for respondent during the
     examination of [petitioner's] income tax liabilities
     for the taxable years 1987, 1988, and 1989.
                                - 18 -


Furthermore, petitioner is deemed to have admitted that his

failure to produce records "was fraudulent with the intent to

evade the payment of taxes".

     Third, failing to file tax returns is evidence of fraud.

"[T]he mere failure to file tax returns, even over an extended

period of time, does not per se establish fraud * * * however,

the failure to file tax returns is persuasive circumstantial

evidence of fraud."     Marsellus v. Commissioner, 544 F.2d 883

(5th Cir. 1977), affg. T.C. Memo. 1975-368.     Petitioner is deemed

to have admitted that he failed to file Federal income tax

returns for 1987 through 1989.     In addition, petitioner's prior

filings of joint income tax returns for 1983 through 1986

indicate petitioner's knowledge of the yearly requirement to file

and further support a finding that petitioner possessed

fraudulent intent in failing to file returns for the years in

issue.

     In conclusion, petitioner's deemed admissions support a

finding of fraud.     Respondent has established by clear and

convincing evidence that petitioner acted fraudulently in failing

to file returns and report income for 1987 through 1989.

                                           An appropriate order

                                      will be issued and decision

                                      will be entered.
