                        T.C. Memo. 2000-370



                      UNITED STATES TAX COURT



                 DARLOW T. MADGE, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 10504-99.                    Filed December 7, 2000.



     Darlow T. Madge, pro se.

     Denise G. Dengler, for respondent.



                        MEMORANDUM OPINION

     COHEN, Judge:   Respondent determined deficiencies, additions

to tax, and penalties with respect to petitioner’s Federal income

tax as follows:
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                              Additions to Tax and Penalties
Year     Deficiency    Sec. 6651(f)   Sec. 6653(b)(1)(A)   Sec. 6654

1987      $59,607          -0-           $44,705.79         $3,199.79
1988       57,101          -0-            42,825.75          3,672.94
1989       70,534      $52,900.50            -0-             4,770.17
1990       68,450       51,337.50            -0-             4,481.53
1991       74,079       55,559.25            -0-             4,233.69
1992       88,708       66,531.00            -0-             3,869.04
1993       69,563       52,172.25            -0-             2,914.65

Respondent also determined an addition to tax under section

6653(b)(1)(B) for 1987.    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.

       Throughout these proceedings, petitioner has maintained only

frivolous positions.    To the extent that his voluminous

submissions are intelligible, he contends that he is not a

taxpayer, that his income from sale of hospital supplies is not

an item of income taxable under section 61, and that the

regulations promulgated under section 61 provide that only

foreign income is taxable.    Petitioner has maintained these

positions despite having been convicted of tax evasion under

section 7201 for 1990, 1991, 1992, and 1993 and of conspiracy to

obstruct and impede the Internal Revenue Service (IRS) under 18

U.S.C. sec. 371.

       Petitioner failed to present any evidence that the amounts

of income and deductions determined in the statutory notice are
                                - 3 -

erroneous.    He argues merely that he has been denied due process

because he was not permitted at the administrative level to argue

his theories that his income is not taxable.      By reason of his

failure to present evidence, all issues other than the additions

to tax for fraud under section 6653(b) and the penalties for

fraudulent failure to file returns under section 6651(f), as to

which respondent has the burden of proof, are decided against

petitioner.    See Rules 123, 142(a), 149(b).

                             Background

     Some of the facts have been stipulated, and the stipulated

facts are incorporated in our findings by this reference.      At the

time the petition was filed, petitioner resided at the Federal

Prison Camp at Duluth, Minnesota.

     Prior to and during the years in issue, petitioner operated

a hospital supply business known as Allied Medical Associates

(Allied).    The business was operated out of petitioner’s

residence.    For the years in issue, Allied received income from

sales in the following amounts:

                 Year             Amount Received

                 1987               $385,291.83
                 1988                472,287.70
                 1989                541,307.68
                 1990                557,189.48
                 1991                469,658.69
                 1992                464,070.32
                 1993                442,100.83
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Petitioner maintained at various locations various bank accounts

into which his business receipts were deposited.   Some of the

accounts were maintained at banks in communities distant from

petitioner’s residence.   Petitioner used false Federal

identification numbers on some of those bank accounts.

Petitioner did not file income tax returns for any of the years

in issue because he decided that the moneys that he received were

not gross income as defined by the applicable statutes and

regulations.   In April 1992, petitioner purported to revoke his

Social Security number.

     On or about September 27, 1989, petitioner completed a

residential loan application.   On that application, he

represented that his employer was Allied, that he had been

employed on that job for 10 years, and that his base employment

income was $15,000 per month.   On or about May 6, 1993,

petitioner executed a uniform residential loan application on

which he represented that his employer was Allied, that he had

been 14 years on the job, and that his base employment income was

$20,000 per month.

     In approximately January 1994, the IRS commenced an

investigation of petitioner.    Petitioner did not cooperate with

the investigation and, instead, sought to obstruct the

investigation.   In March 1994, IRS officers and other law

enforcement officials executed a search warrant at petitioner’s
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residence.   Among items seized at the residence were “accounts

receivable” records, “accounts payable” records, bank records,

and signed but unfiled tax returns for petitioner for 1981 and

1982.   The accounts receivable and accounts payable records

reflected cash receipts and expenditures.    On or about

February 20, 1997, petitioner and others were indicted by a Grand

Jury for the U.S. District Court for the District of Minnesota.

The indictment charged petitioner with conspiracy to obstruct and

impede the due administration of the Internal Revenue Code and

with tax evasion under section 7201 for 1990 through 1993.     On

September 2, 1998, petitioner was convicted of the charges, was

sentenced to prison for a term of 41 months, and was ordered to

make restitution and pay other amounts to the United States.

     Using the records seized at petitioner’s residence,

respondent calculated the sales of Allied during the years in

issue as set forth above, determined that petitioner had other

unreported income, and allowed petitioner deductions for expenses

appearing in the accounts payable records.

                            Discussion

     For 1987, section 6653(b)(1) provides in pertinent part:

          (1) In general.--If any part of any underpayment
     (as defined in subsection (c)) of tax required to be
     shown on a return is due to fraud, there shall be added
     to the tax an amount equal to the sum of-–

                (A) 75 percent of the portion of the
           underpayment which is attributable to fraud, and
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               (B) an amount equal to 50 percent of the
          interest payable under section 6601 with respect
          to such portion for the period beginning on the
          last day prescribed by law for payment of such
          underpayment (determined without regard to any
          extension) and ending on the date of the
          assessment of the tax or, if earlier, the date of
          the payment of the tax.

     For 1988, the applicable provision was in essence the same

as the above section 6653(b)(1)(A).     For 1989 through 1993,

section 6651 provides in pertinent part:

     SEC. 6651.   FAILURE TO FILE TAX RETURN OR TO PAY
                  TAX.

          (a) Addition to the Tax.--In case of failure-–

               (1) to file any return required under
          authority of subchapter A of chapter 61 (other
          than part III thereof), subchapter A of chapter 51
          (relating to distilled spirits, wines, and beer),
          or of subchapter A of chapter 52 (relating to
          tobacco, cigars, cigarettes, and cigarette papers
          and tubes) or of subchapter A of chapter 53
          (relating to machine guns and certain other
          firearms), on the date prescribed therefor
          (determined with regard to any extension of time
          for filing), unless it is shown that such failure
          is due to reasonable cause and not due to willful
          neglect, there shall be added to the amount
          required to be shown as tax on such return 5
          percent of the amount of such tax if the failure
          is for not more than 1 month, with an additional
          5 percent for each additional month or fraction
          thereof during which such failure continues, not
          exceeding 25 percent in the aggregate;

             *       *      *      *        *      *      *

          (f) Increase in Penalty for Fraudulent Failure to
     File.--If any failure to file any return is fraudulent,
     paragraph (1) of subsection (a) shall be applied-–

               (1) by substituting “15 percent” for
          “5 percent” each place it appears, and
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                 (2) by substituting “75 percent for
            “25 percent”.

Respondent has the burden of proving fraud.   See sec. 7454(a).

In considering the additions to tax or penalties for fraud, we

consider the same elements under former section 6653(b)(1) and

under section 6651(f).   See Clayton v. Commissioner, 102 T.C.

632, 653 (1994).

     Respondent has proven unreported income from petitioner’s

business and has allowed deductions that respondent could

identify.   Petitioner has failed to present any evidence of

additional deductions that would offset his income.    See United

States v. Shavin, 320 F.2d 308, 310-311 (7th Cir. 1963); Elwert

v. United States, 231 F.2d 928, 933-936 (9th Cir. 1956);

Greenwood v. Commissioner, T.C. Memo. 1990-362.

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

upon consideration of the entire record.    See Gajewski v.

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

opinion 578 F.2d 1383 (8th Cir. 1978).   Fraud may 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.    See Stone

v. Commissioner, 56 T.C. 213, 223-224 (1971); Otsuki v.

Commissioner, 53 T.C. 96, 105-106 (1969).

     Over the years, courts have developed various factors,

referred to as badges of fraud, that tend to establish fraud.
                                - 8 -

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

badges include a pattern of understatement of income, failure to

file tax returns, implausible or inconsistent explanations of

behavior, concealing assets, and failure to cooperate with tax

authorities.    See, e.g., Bradford v. Commissioner, 796 F.2d 303,

307-308 (9th Cir. 1986), affg. T.C. Memo. 1984-601.    Each of

those badges is present in this case.    Petitioner’s use of false

Federal identification numbers to conceal bank accounts and

failure to make estimated tax payments are further evidence of

his intent to conceal income and prevent the collection of tax.

See Rowlee v. Commissioner, 80 T.C. 1111, 1123 (1983); Leggett v.

Commissioner, T.C. Memo. 1999-100, affd. 221 F.3d 1357 (11th Cir.

2000).   We conclude that respondent has proven fraud for each

year by clear and convincing evidence.

     It is well settled that a conviction under section 7201

collaterally estops a taxpayer from denying fraud for purposes of

former section 6653(b).   See Blohm v. Commissioner, 994 F.2d

1542, 1554 (11th Cir. 1993), affg. T.C. Memo. 1991-636; Amos v.

Commissioner, 43 T.C. 50, 54-56 (1964), affd. 360 F.2d 358 (4th

Cir. 1965).    In view of the substantive identity between the

elements considered under section 6653(b)(1) and section 6651(f),

petitioner’s conviction under section 7201 for the years 1990

through 1993 collaterally estops him from denying fraud for those
                                - 9 -

years for purposes of section 6651(f).    See Clayton v.

Commissioner, supra; Wallace v. Commissioner, T.C. Memo. 2000-49.

     Petitioner argues that he has been denied due process

because he was not allowed to argue with respondent’s agents at

the administrative level or during their testimony in Court about

his interpretation of the meaning of the Internal Revenue Code

and the regulations adopted under it.    It is apparent that an

administrative hearing in this case would have been futile.

Neither his criminal conviction nor the Court’s rulings in this

case (which he characterized as “ridiculous”) have affected his

positions.    His positions were certainly not going to be accepted

by the IRS.

     Petitioner tried prior to and during the trial to withdraw

his petition.   He was advised that he could not do so.    See sec.

7459(d); Estate of Ming v. Commissioner, 62 T.C. 519, 524 (1974).

He requested that the Judge recuse herself for bias because she

advised him in a telephone conference call that he would lose his

argument that he had no income.   That warning to petitioner was

made in the context of notice to him about the provisions of

section 6673, discussed further below.    The Court never indicated

any prejudgment on issues of fact, and advising petitioner of the

applicable law is not an indication of disqualifying bias.    See,

e.g., United States v. Anderson, 433 F.2d 856-860 (8th Cir.

1970); Rowlee v. Commissioner, supra at 1117 n.4.
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     Petitioner was warned before and during trial about the

likelihood that a penalty would be awarded to the United States

if he continued to pursue his groundless and frivolous arguments.

See sec. 6673.   His response was that “with all the money at

stake, it didn’t really matter.”    The large deficiencies,

additions to tax, and penalties owed by petitioner resulted from

his fraudulent failure to file returns.    They are not a reason

not to impose a penalty under section 6673 for his maintenance of

frivolous positions in this case.    Considering the entire record,

a penalty should be imposed and will be awarded to the United

States in the amount of $25,000.    See, e.g., Kowalik v.

Commissioner, T.C. Memo. 1990-363.

                                          Decision will be entered

                                     for respondent.
