                             T.C. Memo. 2016-231



                        UNITED STATES TAX COURT



                  NATHAN A. PEAKE, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 1387-15.                         Filed December 21, 2016.



      Nathan A. Peake, pro se.

      William J. Gregg, for respondent.



                          MEMORANDUM OPINION


      CHIECHI, Judge: This case is before us on respondent’s motion to dismiss

for lack of prosecution (respondent’s motion). We shall grant respondent’s

motion.
                                         -2-

[*2]                                 Background

       Many of the facts are deemed established pursuant to Rule 90(c).1 The

record establishes and/or petitioner does not dispute certain other facts.

       Petitioner resided in Maryland at the time he filed the petition.

       At a time not established by the record, petitioner formed (1) Peake

Management Group (PMG) to represent professional athletes, (2) Peake

Enterprises (PE) to provide his personal services to professional athletes, and

(3) Peake Construction.

       During petitioner’s taxable years 2002, 2003, 2004, 2005, 2006, and 2007,

the years at issue, petitioner received the following amounts of taxable income

from PE:




       1
       All Rule references are to the Tax Court Rules of Practice and Procedure.
All section references are to the Internal Revenue Code (Code) in effect for the
years at issue.
                                        -3-

[*3]

                               Year             Amount
                               2002           $728,811.45
                               2003            773,000.00
                               2004            971,995.30
                               2005            688,964.35
                               2006            550,444.80
                               2007            549,000.00
                                Total         4,262,215.90

       Petitioner’s total income for each of the years at issue (shown above)

consisted of (1) cash withdrawals from PE (cash withdrawals), (2) checks issued

and/or account transfers from PE to petitioner, petitioner’s family, and/or third

parties on petitioner’s behalf (checks issued and/or account transfers), and/or

(3) distributions from PE to petitioner and/or Peake Construction that were labeled

loans (purported loans).

       Petitioner did not have any Federal income tax (tax) withheld for any of his

taxable years 2002, 2003, 2004, 2005, 2006, and 2007. Nor did petitioner make

any estimated tax payments with respect to any of those years.

       With respect to the cash withdrawals, during petitioner’s taxable years 2002,

2003, 2004, 2005, 2006, and 2007, petitioner received taxable income as a result
                                        -4-

[*4] of the following cash withdrawals from PE, each one of which was in an

amount less than $10,000:

                                  Number of                        Total
          Year                 Cash Withdrawals                   Amount
          2002                         47                        $247,950
          2003                         30                         241,500
          2004                         10                           81,500
          2005                         44                         371,205
          2006                         32                         239,425
          2007                          2                           16,000
           Total                      165                       1,197,580

      PE did not issue to petitioner for any of petitioner’s taxable years at issue

Form W-2, Wage and Tax Statement (Form W-2), or Form 1099-MISC,

Miscellaneous Income (Form 1099-MISC), with respect to any of petitioner’s cash

withdrawals.

      With respect to the checks issued and/or account transfers, during 2002 until

at least October 15, 2006, PMG earned income from its clients in the form of

management fees (PMG income). During that same period, petitioner directed

(1) PMG to record in PMG’s books and records only the expenses associated with

earning the PMG income; (2) PE to record the PMG income in PE’s books and

records; (3) PE to pay that PMG income to petitioner, petitioner’s spouse, and/or
                                         -5-

[*5] third parties on petitioner’s behalf through the issuance of checks; and (4) PE

to designate in PE’s books and records those payments of PMG income to

petitioner, petitioner’s spouse, and/or third parties on petitioner’s behalf as

“Consulting fees”. During petitioner’s taxable years 2002, 2003, 2004, 2005,

2006, and 2007, petitioner received taxable income as a result of the following

checks issued and/or account transfers from PE to petitioner, petitioner’s family,

and/or third parties on petitioner’s behalf:

                                                    Checks Issued
                 Year                          and/or Account Transfers
                 2002                               $480,861.45
                 2003                                 531,500.00
                 2004                                 860,495.30
                 2005                                 308,759.35
                 2006                                 278,519.80
                 2007                                 385,500.00
                  Total                             2,845,635.90

      PE did not issue to petitioner for any of petitioner’s taxable years at issue

Form W-2 or Form 1099-MISC with respect to any of the checks issued and/or

account transfers.

      With respect to the purported loans, during petitioner’s taxable years 2002,

2003, 2004, 2005, 2006, and 2007, petitioner received taxable income as a result
                                         -6-

[*6] of the following distributions from PE to petitioner and/or Peake

Construction that were labeled loans:

                               Year         Purported Loans
                              2002                  -0-
                              2003                  -0-
                              2004               $30,000
                              2005                  9,000
                              2006                32,500
                              2007               147,500
                               Total             219,000

      PE did not issue to petitioner for any of petitioner’s taxable years at issue

Form W-2 or Form 1099-MISC with respect to any of petitioner’s purported loans.

      Petitioner filed Form 1040, U.S. Individual Income Tax Return (return), for

his taxable year 2000 (2000 return). As of the time of the evidentiary hearing in

this case (discussed below), petitioner had not filed any return after he filed his

2000 return.2




      2
        In 2003, petitioner hired a certified public accountant (C.P.A.) to prepare
one or more of his returns. Although that C.P.A. prepared a return for at least one
of petitioner’s taxable years 2003, 2004, 2005, or 2006, petitioner did not file a
return for any taxable year after taxable year 2000.
                                        -7-

[*7] On March 17, 2011, petitioner entered into a plea agreement in the U.S.

District Court for the District of Columbia (U.S. District Court) in which he

pleaded guilty to tax evasion under section 7201 with respect to his taxable year

2004. In that plea agreement, petitioner also pleaded guilty to conspiracy to

commit bank and wire fraud under 18 U.S.C. sec. 371. On October 31, 2011, the

U.S. District Court, inter alia, sentenced petitioner to 36 months in prison with two

years of supervised release.

      Respondent issued a notice of deficiency (notice) to petitioner with respect

to his taxable years 2002, 2003, 2004, 2005, 2006, and 2007. In that notice,

respondent determined the following deficiencies in, and additions under sections

6651(a)(2) and (f) and 6654(a) to, petitioner’s tax:

                                              Additions to Tax Under
    Year         Deficiency      Sec. 6651(a)(2)       Sec. 6651(f)   Sec. 6654(a)
    2002          $265,186          $66,296.50         $192,259.85     $8,861.74
    2003           256,491           64,122.75          185,955.98      6,617.78
    2004           325,822           81,455.50          236,220.95      9,337.11
    2005           226,419           56,604.75          164,153.78      9,082.03
    2006           177,094           44,273.50          128,393.15      8,380.79
    2007           175,984           43,996.00          127,588.40      8,009.54
                                         -8-

[*8] In the notice, respondent also determined in the alternative to respondent’s

determination under section 6651(f) that petitioner is liable for an addition to tax

under section 6651(a)(1).

      From September 9, 2015, until early February 2016, respondent’s counsel

made repeated attempts to contact petitioner in order to prepare this case for trial

and/or to attempt to settle it. Petitioner was completely unresponsive to those

attempts.

      This case was called from the calendar for the trial session that began on

February 8, 2016, in Baltimore, Maryland (February 8, 2016 Baltimore trial

session). Counsel for respondent appeared. There was no appearance by or on

behalf of petitioner. Respondent filed respondent’s motion.

      This case was recalled for an evidentiary hearing with respect to respon-

dent’s motion.3 Counsel for respondent appeared. There was no appearance by or

on behalf of petitioner.




      3
       It was at the request of respondent that we held an evidentiary hearing on
February 8, 2016 (February 8, 2016 evidentiary hearing). At that hearing,
respondent presented evidence for petitioner’s taxable years 2002, 2003, 2004,
2005, 2006, and 2007 with respect to the respective additions to tax under sec.
6651(f) that respondent had determined for those years.
                                         -9-

[*9]                                Discussion

       Petitioner bears the burden of proving error in respondent’s deficiency

determination and respondent’s determinations under sections 6651(a)(2) and

6654(a) with respect to each of his taxable years 2002, 2003, 2004, 2005, 2006,

and 2007. See Rule 142(a).

       On the record before us, we find that petitioner has failed to carry his

burden of establishing any error in respondent’s deficiency determination and

respondent’s determinations under sections 6651(a)(2) and 6654(a) with respect to

each of his taxable years 2002, 2003, 2004, 2005, 2006, and 2007. On that record,

we sustain those determinations.

       We address now respondent’s determination that petitioner is liable for the

addition to tax under section 6651(f) for fraudulent failure to file a return with

respect to each of his taxable years 2002, 2003, 2004, 2005, 2006, and 2007. In

order for that addition to tax to apply, we must consider essentially the same

matters that are involved in determining whether a taxpayer is liable for the fraud

penalty under section 6663 and its predecessor provision, section 6653(b). See

Clayton v. Commissioner, 102 T.C. 632, 653 (1994). Consequently, as is required

for purposes of section 6663, the Commissioner of Internal Revenue (Commis-

sioner) must prove by clear and convincing evidence for purposes of section
                                        - 10 -

[*10] 6651(f) that an underpayment exists for the year in question and that the

failure to file a return for that year was due to fraud. See secs. 7454(a),

6651(a)(1), (b)(1); Rule 142(b); see also Clayton v. Commissioner, 102 T.C. 632.

The Commissioner is not required, however, to prove the precise amount of the

underpayment. E.g., DiLeo v. Commissioner, 96 T.C. 858, 873 (1991), aff’d, 959

F.2d 16 (2d Cir. 1992). To prove the existence of an underpayment, the

Commissioner may not rely on a taxpayer’s failure to carry his or her burden of

proof with respect to the underlying deficiency. E.g., Parks v. Commissioner, 94

T.C. 654, 660-661 (1990). Moreover, if the Commissioner establishes by clear

and convincing evidence for purposes of section 6651(f) that any portion of an

underpayment is attributable to fraud, the entire underpayment is to be treated as

attributable to fraud, except with respect to any portion of the underpayment that

the taxpayer establishes by a preponderance of the evidence is not attributable to

fraud. E.g., Good v. Commissioner, T.C. Memo. 2012-323, at *44.

      On the record before us, we find that respondent has established by clear

and convincing evidence that there is an underpayment of tax with respect to each

of petitioner’s taxable years 2002, 2003, 2004, 2005, 2006, and 2007.

      In order to prove fraudulent intent, the Commissioner must prove by clear

and convincing evidence that the taxpayer intended to evade tax, which the
                                        - 11 -

[*11] taxpayer believed to be owing, by conduct intended to conceal, mislead, or

otherwise prevent the collection of such tax. E.g., Parks v. Commissioner, 94 T.C.

at 661. The existence of fraud is a question of fact to be resolved upon

consideration of the entire record. E.g., DiLeo v. Commissioner, 96 T.C. at 874.

Fraud is never presumed or imputed and should not be found in circumstances

which create at most only a suspicion. E.g., Petzoldt v. Commissioner, 92 T.C.

661, 699-700 (1989). Direct evidence of the requisite fraudulent intent is seldom

available. E.g., id. The Commissioner may prove fraud by circumstantial

evidence. E.g., Rowlee v. Commissioner, 80 T.C. 1111, 1123 (1983).

      The courts have identified a number of so-called badges of fraud from

which fraudulent intent may be inferred, including (1) the failure to maintain

adequate books and records as required by the Code and the regulations,

(2) dealing in cash, (3) acts designed to conceal income, (4) the failure to file a

return, (5) the consistent and substantial understatement of income, (6) a

conviction for tax evasion under section 7201, (7) a conviction for other illegal

activity, (8) the failure to cooperate with the Commissioner’s representatives, and

(9) the failure to appear for trial. See, e.g., Bradford v. Commissioner, 796 F.2d

303, 307 (9th Cir. 1986), aff’g T.C. Memo. 1984-601; Ruark v. Commissioner,

449 F.2d 311, 312-313 (9th Cir. 1971), aff’g per curiam T.C. Memo. 1969-48;
                                        - 12 -

[*12] Niedringhaus v. Commissioner, 99 T.C. 202, 211 (1992); Parks v.

Commissioner, 94 T.C. at 664-665; Smith v. Commissioner, 91 T.C. 1049, 1059-

1060 (1988), aff’d, 926 F.2d 1470 (6th Cir. 1991); McGee v. Commissioner, 61

T.C. 249, 260 (1973), aff’d, 519 F.2d 1121 (5th Cir. 1975); Tipton v.

Commissioner, T.C. Memo. 1994-624, 1994 WL 706704, at *7; Wilson v.

Commissioner, T.C. Memo. 1994-454, 1994 WL 483900, at *6; Mobley v.

Commissioner, T.C. Memo. 1993-60, 1993 WL 42836, at *5, aff’d without

published opinion, 33 F.3d 1382 (11th Cir. 1994); Register v. Commissioner, T.C.

Memo. 1990-576, 1990 WL 168170. Although no single factor is necessarily

sufficient to establish fraud, the existence of several indicia constitutes persuasive

circumstantial evidence of fraud. E.g., Petzoldt v. Commissioner, 92 T.C. at 700.

      In the present case, for the taxable years at issue (except as indicated below)

petitioner (1) failed to maintain adequate books and records as required by the

Code and the regulations; (2) received substantial cash withdrawals;

(3) structured his cash withdrawals so that each such withdrawal was in an amount

less than $10,000 in an attempt to avoid certain Federal reporting requirements;

(4) knew that he was required to file returns but willfully did not file returns;

(5) consistently and substantially understated income; (6) was convicted under

section 7201 for tax evasion with respect to his taxable year 2004; (7) was
                                          - 13 -

[*13] convicted under 18 U.S.C. sec. 371 for conspiracy to commit bank and wire

fraud; (8) completely failed before the February 8, 2016 Baltimore trial session to

cooperate with respondent’s counsel in order to prepare this case for trial and/or to

attempt to settle it; and (9) failed to appear at the call of this case from the

calendar for the February 8, 2016 Baltimore trial session and at the recall of this

case for the February 8, 2016 evidentiary hearing.

      On the record before us, we find that respondent has established by clear

and convincing evidence that petitioner intended to evade tax with respect to each

of his taxable years 2002, 2003, 2004, 2005, 2006, and 2007, which he believed to

be owing, by conduct intended to conceal, mislead, or otherwise prevent the

collection of such tax. On that record, we further find that respondent has

established by clear and convincing evidence that petitioner is liable for the

addition to tax under section 6651(f) for each of those years.

      To reflect the foregoing,


                                                   An order granting respondent’s

                                         motion and decision for respondent will be

                                         entered.
