                        T.C. Memo. 2005-255



                      UNITED STATES TAX COURT



                  STEVEN W. POND, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 10911-03.            Filed October 31, 2005.


     Steven W. Pond, pro se.

     Elizabeth Downs, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     FOLEY, Judge:   By notices dated April 8, 2003, respondent

determined deficiencies in and additions to petitioner’s 1995,

1996, 1997, 1998, 1999, 2000, and 2001 Federal income taxes.   The

issues for decision are whether petitioner received unreported
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income and is liable for the sections 6654(a)1 and 6651(a)(1) or

(f) additions to tax.

                          FINDINGS OF FACT

     In 1980, petitioner began operating a helicopter repair and

maintenance company.    While operating the business out of his

home, petitioner provided repair and maintenance services and

equipment sales to his customers.    He did not maintain a formal

set of books and records, but he did issue invoices.     Petitioner

received both checks and cash for the services he provided.

Petitioner deposited most of the business proceeds into personal

and business bank accounts, and both personal and business

expenses were paid with these funds.

     Petitioner’s business gross receipts in 1995, 1996, 1997,

1998, 1999, 2000, and 2001 totaled $70,899, $73,092, $149,366,

$152,353, $74,697, $67,661, and $69,691, respectively.     In 1995

and 1996, petitioner received rental income from Tulsa

Helicopters, Inc., in the amounts of $33,815 and $7,363,

respectively.   On June 20, 1996, petitioner sold real property

and received $400,000 in proceeds.      Prior to the years in issue,

petitioner filed Federal individual income tax returns (returns)

with respondent.




     1
        Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the years in issue, and
all Rule references are to the Tax Court Rules of Practice and
Procedure.
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     On April 8, 2003, respondent issued petitioner separate

notices of deficiency relating to 1995 through 1997, 1998 through

2000, and 2001.   In the notices, respondent determined that

petitioner:   (1) Failed to report income relating to 1995 through

2001, (2) was liable for section 6651(f) additions to tax for

fraudulent failure to file returns relating to 1995 through 2001,

(3) was liable in the alternative for section 6651(a)(1)

additions to tax for failure to file returns relating to 1995

through 2001, and (4) was liable for section 6654(a) additions to

tax for failure to pay estimated income taxes relating to 1996

through 2001.   On July 8, 2003, petitioner filed his petition,

and on August 28, 2003, respondent filed his answer.

     Petitioner resided in Inola, Oklahoma, at the time he filed

his petition.

                              OPINION

     Petitioner concedes that he received unreported income

during the years in issue and does not dispute respondent’s

determinations relating to his rental activity, real estate

sales, wages, and helicopter business gross receipts.

Accordingly, we sustain respondent’s determinations relating to

this unreported income.

     Petitioner contends that he believed that he was not

required to file tax returns relating to the years in issue.
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Respondent contends, pursuant to section 6651(f), that petitioner

fraudulently failed to file his returns.

     Respondent must establish by clear and convincing evidence

that petitioner, by failing to file, intended to evade tax.    See

sec. 7454(a); Clayton v. Commissioner, 102 T.C. 632, 646, 652-653

(1994).    While a taxpayer’s failure to file a tax return does

not, standing alone, establish fraud, an inference of fraud is

justified when the failure to file is coupled with other badges

of fraud that establish an intent to conceal or mislead.     See

Zell v. Commissioner, 763 F.2d 1139, 1145-1146 (10th Cir. 1985),

affg. T.C. Memo. 1984-152; Clayton v. Commissioner, supra at 653

(stating that “we must consider the same elements” in determining

the fraud penalty, pursuant to section 6663, and fraudulent

failure to file, pursuant to section 6651(f)); Kotmair v.

Commissioner, 86 T.C. 1253 (1986).

     In Kotmair, the Commissioner determined that a self-employed

taxpayer, who was convicted of willfully failing to file Federal

income tax returns and did not pay estimated taxes or maintain

adequate books and records, committed fraud, pursuant to section

6653(b).    The Court held that the Commissioner had not

established that the taxpayer had the requisite intent to evade

tax because “There was no evidence of any falsification of books

or records, no evidence of any concealment or misleading”.     Id.

at 1261.    Similarly, at trial, when the Court inquired whether
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petitioner attempted to conceal his income, respondent’s counsel

stated:   “No, Your Honor.   I don’t contend that he tried to

conceal his income.”   In addition, petitioner credibly testified

that he did not file returns relating to the years in issue

because he believed that the exemption amount, pursuant to

section 6012(a)(1)(A), is not defined by statute.    Petitioner’s

belief is incorrect but appears to have been earnestly held.

Although petitioner failed to file returns, pay estimated taxes,

or maintain adequate books and records, respondent failed to

clearly and convincingly establish that petitioner had the

requisite intent to evade tax.     Accordingly, we reject

respondent’s fraud determinations.

     With respect to section 6651(a)(1) and 6654(a) additions to

tax, respondent met his burden of production, pursuant to section

7491(c), and established that petitioner failed to file his 1995

through 2001 returns and pay his 1996 through 2001 estimated

income taxes.   See Higbee v. Commissioner, 116 T.C. 438, 446

(2001). Petitioner, however, failed to introduce sufficient facts

to establish the inapplicability of these additions to tax.

Accordingly, we sustain respondent’s determinations relating to

sections 6651(a)(1) and 6654(a) additions to tax.

     At trial and in documents filed with the Court, petitioner

raised several groundless contentions.    Pursuant to section

6673(a)(1), this Court is authorized to impose a penalty not to
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exceed $25,000 if petitioner advances frivolous arguments.

Respondent did not request the Court to, and we do not, impose a

section 6673 penalty.   Nevertheless, we admonish petitioner that

he may be subject to a section 6673 penalty if he asserts

frivolous or groundless contentions in a subsequent proceeding in

this Court.

     Contentions we have not addressed are irrelevant, moot, or

meritless.

     To reflect the foregoing,


                                              Decision will be entered

                                         under Rule 155.
