                         T.C. Memo. 2004-77



                       UNITED STATES TAX COURT



          J. THOMAS AND HENRIETTA A. HARDIN, Petitioners v.
             COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 14301-01.               Filed March 22, 2004.



     J. Thomas Hardin, for petitioners.

     Mark D. Eblen, for respondent.


                         MEMORANDUM OPINION

     KROUPA, Judge:    Respondent determined a deficiency of

$63,0631 in petitioners’ Federal income tax for 1996 and an

accuracy-related penalty of $12,613 under section 6662(a)2

     1
         All amounts have been rounded to the nearest dollar.
     2
       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, unless otherwise
                                                   (continued...)
                                 - 2 -

arising from petitioners’ failure to substantiate certain

expenses for 1996.     The trial of this case was scheduled for the

Court’s Louisville, Kentucky, trial session commencing September

8, 2003 (Louisville trial session).       When this case was called at

calendar, petitioners failed to appear.       Respondent moved to

dismiss the case for petitioners’ lack of prosecution.       We grant

respondent’s motion to dismiss for lack of prosecution.

     Respondent also moved to impose sanctions under section 6673

against petitioners for instituting these proceedings primarily

for delay and for petitioners unreasonably failing to pursue

available administrative remedies.       An evidentiary hearing was

held.3   We shall impose a penalty against petitioners under

section 6673.

                              Background

     Petitioners resided, at the time they filed the petition, in

Inez, Kentucky.

     Petitioner,4 licensed to practice law in Kentucky and West

Virginia, was a self-employed attorney involved in the general


     2
      (...continued)
indicated.
     3
       The Court heard testimony from Agent Anna Lou Dary, who
handled the audit, and Appeals Officer Elmer L. Craig. The
testimony related to the accuracy-related penalty under sec.
6662(a) and sec. 6673.
     4
       References to petitioner individually are to J. Thomas
Hardin, and the claimed deductions relate to his businesses, not
to those of Henrietta A. Hardin.
                                - 3 -

practice of law.    Petitioner also served as a Domestic Relations

Commissioner within a three-county area in Kentucky which meant

he presided over and heard divorce actions (divorce referee).

     Petitioner reported self-employment income in 1996 of

$170,980, and claimed deductions of $110,171 attributable to the

law practice, and $27,953 attributable to petitioner’s serving as

a divorce referee.   Respondent began examining petitioners’

income tax return for 1996 on May 18, 1999, when respondent sent

petitioners a letter requesting to meet with them to obtain

documentation substantiating petitioners’ income, expenses, and

deductions reported on their tax return for 1996.

     Despite numerous requests to provide respondent the

documents to substantiate the deductions, petitioners lacked

adequate books and records.   What little documentation

petitioners provided was insufficient to substantiate the

deductions.   For example, petitioner provided banking information

and provided the revenue agent a listing of expenses.     The

listing lacked dates and check numbers, however, and was merely a

listing of expenses with separate amounts shown under each

expense category.

     The revenue agent testified that many of petitioners’ bank

records appeared to be personal expenses that petitioners

deducted for business purposes.   For example, petitioner deducted

checks written to his wife for contract labor, but petitioners
                                 - 4 -

did not report any income from the contract labor on their return

for 1996.   There were also checks written to petitioners’

daughter and checks written to the University of Kentucky where

petitioners’ daughter attended.    Petitioner also deducted loan

payments as business expenses.

     Petitioners used various delay tactics to avoid providing

the necessary substantiation.    Petitioner failed to attend most

of the substantiation conferences that respondent’s revenue agent

scheduled with petitioner, and petitioner frequently failed to

notify respondent’s revenue agent in advance that he would be

unable to attend the conference.    Petitioner would even miss

conferences that were scheduled at petitioner’s law office.      When

the revenue agent appeared at petitioner’s office for a

substantiation conference, petitioner’s secretary told the agent

that petitioner was not in the office and that she did not know

where petitioner was or even if he was expected in the office

that day.   Petitioner often had to reschedule the substantiation

conferences.

     Respondent’s revenue agent testified that petitioner

rescheduled 13 different times.    The excuses petitioner gave to

respondent were numerous and varied.     Petitioner missed the

conferences or needed to reschedule the conferences for the

following reasons:   (1) His mother was ill, (2) his father was

ill, (3) his college roommate was ill, (4) a close friend died,
                               - 5 -

(5) he needed to attend a closing, (6) he needed to attend a

closing for a friend, (7) he needed to attend a closing for his

law firm, (8) the weather was too bad, (9) he was working on a

political campaign, (10) he had to be in court, (11) he was too

busy with his law practice, and (12) he was stung by a wasp.

Because of petitioner’s excuses to reschedule the substantiation

conferences, this matter languished for more than 2 years in

Exams.

     After 2-1/2 years of futile attempts at rescheduling

substantiation conferences with petitioners, respondent issued a

statutory notice of deficiency (Notice) on September 6, 2001.     In

the Notice, respondent disallowed $67,906 claimed by petitioners

on Schedule C-15 as ordinary and necessary expenses incurred in

operating petitioner’s law practice, $22,828 claimed by

petitioners on Schedule C-26 as ordinary and necessary expenses

incurred in serving as a divorce referee, and $7,541 claimed in

Schedule E rental losses.7   Respondent also assessed an accuracy-


     5
       Regarding petitioner’s law practice, petitioner failed to
provide documentation to substantiate car expenses, utilities,
phone, travel expenses, taxes and licenses, contract labor, dues
and publications, office expenses, legal and professional
services, insurance, and filing fees.
     6
       Regarding petitioner’s divorce referee services,
petitioner failed to substantiate car expenses, contract labor,
insurance, interest, office expenses, and travel expenses.
     7
       Respondent also increased petitioners’ Schedule C gross
receipts by $88,587. Respondent subsequently conceded, however,
                                                   (continued...)
                               - 6 -

related penalty under section 6662 against petitioners.

     Petitioner also failed to attend conferences with Appeals

even though the conferences were scheduled at locations most

convenient to petitioner.   Petitioner gave the same excuses to

Appeals that he had given to respondent’s examiner.    At all

times, petitioner insisted that he had the documents to

substantiate his Schedule C, Profit or Loss From Business, and

Schedule E, Supplemental Income and Loss, deductions.8    He just

needed more time to locate the documents.   Petitioner never

presented the substantiation to respondent despite the 4 years

petitioner had since the audit began in 1999.

     Petitioner’s actions and excuses continued even after

respondent’s counsel became involved in the case.     Respondent

scheduled an informal discovery conference in respondent’s office

and asked petitioner to produce certain documents.     Petitioner

failed to attend the conference and failed to contact respondent

to reschedule until after petitioner missed the conference.

     Respondent’s counsel filed a Motion to Compel Production of

Documents and Impose Sanctions with this Court on July 25, 2003.



     7
      (...continued)
that petitioners’ gross receipts should be increased by $1,296,
not $88,587.
     8
       If petitioner met with the examiner or later with Appeals
for the “purpose of having a substantiation conference,”
petitioner promised to provide additional documentation typically
within 30 days of the conference but would fail to provide the
documentation promised.
                              - 7 -

Respondent’s motion also emphasized that, if petitioners failed

to comply with respondent’s discovery request, petitioners’ case

could be dismissed under Rule 123 and other sanctions, including

a penalty under section 6673, could apply.   The Court issued an

Order dated July 28, 2003, ordering petitioners to comply with

respondent’s discovery request and scheduling the sanction

portion of the motion for the Louisville trial session.

     Respondent’s counsel served his pretrial memorandum with a

copy to petitioners on August 22, 2003.    Respondent’s memorandum

again addressed the section 6673 penalty that was first advanced

in respondent’s motion to compel.

     Petitioners failed to file a pretrial memorandum, and

petitioners failed to prepare their case for trial in violation

of this Court’s Standing Pretrial Order.   Petitioners also failed

to comply with Rule 91 that requires parties to stipulate to as

many facts as possible.

     On the Thursday before the Louisville trial session,9

petitioner orally requested a motion to continue.   Petitioner

explained that his mother was having eye surgery, and he needed a

continuance so he could attend to his mother’s medical needs.

The Court denied petitioners’ request for continuance and ordered



     9
       As late as the Friday before the Louisville trial session,
petitioner steadfastly maintained that he had all the necessary
documentation. He simply needed more time to locate the
“missing” documents.
                                - 8 -

petitioners to attend calendar call so we could arrange a

mutually convenient time that week to try petitioners’ case.

Petitioners ignored the Court’s Order.     Petitioners did not

attend calendar call.    Instead, only respondent’s counsel

appeared when this case was called.     Respondent’s counsel

explained to the Court that his office had received a letter by

facsimile from Mrs. Hardin stating that petitioner had an inner

ear infection and would be unable to attend calendar call.       There

was no explanation why Mrs. Hardin was unavailable.

     Respondent moved to dismiss for failure to prosecute and for

the imposition of a penalty under section 6673.     The Court

subsequently held an evidentiary hearing at respondent’s request

regarding the accuracy-related penalty under section 6662(a) for

petitioners’ failure to keep accurate books and records.       The

revenue agent and Appeals officer who testified as to the

accuracy-related penalty under section 6662(a) also testified

regarding respondent’s written motion to impose a penalty under

section 6673.

                             Discussion

     We now discuss whether to impose sanctions against

petitioners.    Given the serious consequences of a dismissal, we

begin by discussing the sanction of dismissing this case for

petitioners’ failure properly to prosecute.
                               - 9 -

A.   Failure To Prosecute–-Sanction by Dismissal

      Respondent moved to dismiss this case for petitioners’

failure to prosecute.   Rule 123 provides that this Court may, at

any time, dismiss a case and enter a decision against a taxpayer.

      Dismissal is the severest sanction that a court may apply.

Durgin v. Graham, 372 F.2d 130, 131 (5th Cir. 1967); Freedson v.

Commissioner, 67 T.C. 931, 937 (1977), affd. 565 F.2d 954 (5th

Cir. 1978).   “[I]ts use must be tempered by a careful exercise of

judicial discretion.”   Freedson v. Commissioner, supra at 937.

Dismissal may properly be granted where the party’s failure is

due to willfulness, bad faith, or fault.    Levy v. Commissioner,

87 T.C. 794, 803 (1986).   A case may be dismissed for failure

properly to prosecute when taxpayers fail to appear at trial and

do not otherwise participate in the resolution of their claims.

Basic Bible Church v. Commissioner, 86 T.C. 110, 114 (1986);

Ritchie v. Commissioner, 72 T.C. 126, 128-129 (1979); Ulery v.

Commissioner, T.C. Memo. 1990-409.

      Petitioners have been admonished that their failure to

comply with this Court’s Orders and Rules could result in a

default.   Petitioners failed to comply with this Court’s Standing

Pretrial Order and Rules requiring the preparation of this case,

including the requirement to meet and/or work with respondent’s

counsel to exchange documents and information, stipulate facts,

and otherwise to prepare for trial.    Petitioner is an experienced
                              - 10 -

practicing lawyer who ignored this Court’s Orders and procedures.

     Petitioners failed to submit a Pretrial Memorandum or appear

in person at the Louisville trial session.    Petitioners did not

enter into a stipulation or make themselves available to

participate in the stipulation process.    Petitioners have, on

several occasions, not provided adequate records to substantiate

the claimed deductions, although they have been given several

opportunities and over 4 years to do so.    Petitioners ignored

many meetings respondent scheduled and frequently failed to give

respondent any advance notice of petitioners’ intention to miss

the meetings.   Despite petitioners’ consistently and continuously

maintaining during the entire 4-year period that they have all

the necessary documentation, they have neither established nor

substantiated the deductions claimed.

     We find that petitioners failed properly to prosecute this

case.   In addition, petitioners have ignored this Court’s Orders

and Rules and protracted these proceedings.    Further, petitioners

failed to provide the Court an explanation why they failed to

comply with this Court’s Rules and our Standing Pretrial Order.

Petitioners did not respond to respondent’s Motion to Compel

Production of Documents and Impose Sanctions or respondent’s

Motion to Dismiss for Lack of Prosecution and to Impose Sanctions

under section 6673.   Nor did petitioners appear at the hearing

held at the Louisville trial session.   In addition, petitioners
                               - 11 -

have failed to contact the Court to determine the status of that

hearing.    We find that these failures were due to petitioners’

willfulness, bad faith, or fault.    We shall therefore grant

respondent’s Motion to Dismiss For Failure Properly to Prosecute.

Decision will be entered for respondent, taking into account

respondent’s concessions, supra, n.7.

B.   Sanction Under Section 6673

      Respondent filed a motion to impose a penalty against

petitioners under section 6673.    This Court may impose a penalty

up to $25,000 when proceedings have been instituted or maintained

primarily for delay, where the taxpayer’s position is frivolous

or groundless, or where the taxpayer unreasonably fails to pursue

available administrative remedies.      Sec. 6673(a)(1).

      Respondent argues that petitioners instituted and maintained

this case primarily for the purpose of delay and that they

unreasonably failed to pursue available administrative remedies.

We agree.

      We have found that taxpayers instituted proceedings in this

Court primarily for delay where they “exhibited total disinterest

in presenting or proving the merits, if any, of their cases.”

Voss v. Commissioner, T.C. Memo. 1989-238.      This Court also has

held that taxpayers unreasonably failed to pursue available

administrative remedies when they failed to accept or respond to

the Commissioner’s Appeals Office invitation to discuss their
                             - 12 -

case (Swingler v. Commissioner, T.C. Memo. 1990-437) and when

taxpayers failed to respond to the Commissioner’s requests to

substantiate deductions claimed on their returns.    Birth v.

Commissioner, 92 T.C. 769 (1989); Swingler v. Commissioner,

supra.

     We find the facts of this case are similar to those in Birth

v. Commissioner, supra at 770, 774-775, in which this Court

awarded damages10 under section 6673 for the taxpayers’

unreasonable failure to pursue available administrative remedies.

The taxpayers in Birth refused to attend an audit and failed to

substantiate deductions for expenses allegedly incurred in their

business activities.

     In the instant case, petitioners repeatedly ignored

respondent’s requests to substantiate the deductions petitioners

claimed on their return for 1996 and failed to respond or

cooperate in respondent’s audit.   Petitioners have no one to

blame but themselves for their failure to keep complete and

adequate records and their failure to provide substantiation in

response to respondent’s requests.    This is a substantiation case



     10
       Congress changed the terminology of sec. 6673(a) from
“damages” to “penalty” in sec. 7731(a) of the Omnibus Budget
Reconciliation Act of 1989, Pub. L. 101-239, 103 Stat. 2400. The
legislative history to the Omnibus Budget Reconciliation Act of
1989 makes clear that the United States need not prove specific
damages for this Court to impose a penalty under sec. 6673. H.
Rept. 101-247, at 1399 (1989).
                               - 13 -

that could have and should have been resolved at the audit stage

had petitioners been willing to pursue administrative remedies.

     Petitioners have shown disregard for the tax laws and the

Rules of this Court.   We believe that petitioners will continue

to do so unless and until they are sent a message that their

behavior is unacceptable.   We are acutely aware that petitioner

is an officer of the court, not only as a practicing attorney,

but also as a referee or hearing officer involving family law

matters.   As such, petitioner should appreciate the importance of

following this Court’s Rules and not wasting the limited

resources of the Government.

     Petitioners have displayed a complete lack of interest in

presenting their case and have repeatedly ignored respondent’s

requests for substantiation of the claimed deductions.      We

therefore conclude that petitioners initiated this proceeding

primarily for delay and have unreasonably failed to pursue

available administrative remedies.      Accordingly, we require

petitioners to pay a penalty of $10,000 to the United States

pursuant to section 6673.

     To reflect the foregoing,


                                         An appropriate order and

                                 order of Dismissal for Lack of

                                 Prosecution and a Decision will be

                                 entered under Rule 155.
