                          T.C. Memo. 2001-148



                        UNITED STATES TAX COURT



         CHARLES J. AND FRANCESCA C. SIGERSETH, Petitioners v.
              COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 18998-99.                         Filed June 21, 2001.


     Charles J. and Francesca C. Sigerseth, pro sese.

     Jeremy L. McPherson, for respondent.



                          MEMORANDUM OPINION

     VASQUEZ, Judge:     Respondent determined deficiencies of

$384,998 and $445,463 in and section 6662(a) accuracy-related

penalties of $77,000 and $89,093 on petitioners’ 1995 and 1996

Federal income taxes, respectively.1    After having orally



     1
        Unless otherwise provided, section references are to the
Internal Revenue Code in effect for the years in issue, and Rule
references are to the Tax Court Rules of Practice and Procedure.
                                - 2 -

dismissed this case for lack of prosecution as to the

deficiencies in petitioners' income taxes, we have remaining for

decision whether petitioners are liable for the accuracy-related

penalties and whether to impose a penalty under section 6673 on

petitioners.

                              Background

     At the time the petition was filed, petitioners resided in

El Macero, California.

     On September 23, 1999, respondent determined that for the

1995 and 1996 tax years, petitioners failed to report income with

regard to the activities of three trusts and capital gain from

the sale or exchange of assets, and petitioners were not entitled

to a deduction with regard to certain personal exemptions.

Further, respondent determined that petitioners were liable for

self-employment taxes but allowed a partially offsetting

deduction for the self-employment taxes determined.   Respondent

additionally determined accuracy-related penalties based on a

substantial understatement of tax or negligence or disregard of

rules or regulations.    On December 27, 1999, petitioners filed a

petition in this Court, averring that respondent’s determinations

were erroneous, the notice of deficiency was issued improperly,

and respondent had the burden of proof with regard to the

determinations made by him.    On March 8, 2000, after we allowed

an extension of time in which respondent could answer, respondent
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filed his answer with the Court.    On May 16, 2000, this case was

calendared for the Court’s trial session in San Francisco,

California, beginning on October 16, 2000.    On June 12, 2000,

respondent’s Appeals Office contacted petitioners in an attempt

to resolve the disputed issues.    There is no evidence in the

record indicating that petitioners responded to the Appeals

Office.

     On July 10, 2000, respondent’s counsel wrote petitioners to

obtain informal discovery, prepare a stipulation of facts,

explain the consequences of not appearing at trial, and inform

them of respondent’s anticipated motion to seek a section 6673

penalty.   In addition, respondent’s counsel suggested that the

parties meet on July 20, 2000, to address the above matters.

     Petitioners did not provide respondent with the requested

information, but, on July 24, 2000, Mr. Sigerseth wrote

respondent to suggest a meeting on September 3, 4, or 5, 2000.

In the correspondence, Mr. Sigerseth stated that “Cal: Avila”

would be petitioners’ counsel and would attend the meeting.

     On July 26, 2000, respondent’s counsel stated in a letter to

petitioners that he would be willing to meet on September 5,

2000, with petitioners and Mr. Avila.    He informed them, however,

that Mr. Avila could not represent petitioners at the Tax Court

unless he was an attorney (or other person) admitted to practice

before the Tax Court.   He reminded petitioners again that
                               - 4 -

respondent was planning to move that the Court impose a section

6673 penalty.

     On that same day, respondent served petitioners with a

request for production of documents and a request for

interrogatories.   Additionally, respondent served petitioners

with a request for admissions and filed a copy with the Court.

On July 31, 2000, respondent filed a second request for

admissions with the Court, which was also served on petitioners.

Petitioners did not respond to the requests for admissions.

Therefore, each matter to which respondent requested admission is

deemed admitted.   See Rule 90(c).   Some of those deemed

admissions were:

     (1) Petitioners created the Sigerseth Family Trust on August

6, 1992;

     (2) In 1995 and 1996, petitioners Charles J. Sigerseth and

Francesca C. Sigerseth were the only two trustees of the

Sigerseth Family Trust;

     (3) On page 3 of the declaration of trust of the Sigerseth

Family Trust, it states in the “Trustees' Declaration of Purpose”

that the “Creator” transferred property to the trustees,

including “the exclusive use of His [the creator's] lifetime

services and ALL of His EARNED REMUNERATION ACCRUING THEREFROM,

from any current source whatsoever, so the CHARLES J. SIGERSETH

can maximize His lifetime efforts through the utilization of His
                               - 5 -

Constitutional Rights; for the protection of His family in the

pursuit of His happiness through His desire to promote the

general welfare, all of which CHARLES J. SIGERSETH feels He will

achieve because they are sustained by His RELIGIOUS BELIEFS.”;

     (4) Petitioners did not report the sale of their half

interest in the Tahoe City condominium on their 1996 Federal

income tax return;

     (5) During all of 1995 and 1996, the Sigerseth Family Trust

was a beneficiary of Trust Management Services, a trust;

     (6) In 1995 and 1996, Trust Management Services, a trust,

was engaged in marketing abusive trusts and providing services to

investors in abusive trusts;

     (7) During respondent's examination of petitioners' 1995 and

1996 Federal tax returns, petitioners refused to cooperate with

respondent, to provide any of the documents requested by

respondent, or to provide any explanations or documents to

support the information reported on the tax returns; and

     (8) After the petition was filed in this case, petitioners

refused to respond to any communication from respondent's Appeals

Office.

     On August 2, 2000, petitioners in a letter to respondent

suggested alternative dates (September 19 or 21, 2000) to meet,

but they again did not respond to respondent’s discovery

requests.   On September 5, 2000, respondent filed motions with
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the Court to compel production of documents and responses to

interrogatories.

     On September 6, 2000, the Court granted respondent’s motions

to compel production of documents and responses to

interrogatories, ordering that the production and responses occur

on or before September 18, 2000.   The Court warned petitioners

that if they failed to comply with the Court’s order, it would

impose sanctions under Rule 104, including dismissal of the case

or a decision against petitioners.     Petitioners failed to respond

to the Court’s order.

     On September 19, 2000, respondent’s counsel met with Mr.

Sigerseth, but petitioners still refused to provide the requested

information and documents.   Mr. Sigerseth however provided

respondent’s counsel with a proposed letter to the Court

requesting that petitioners be allowed to withdraw their

petition.

     On October 2, 2000, respondent filed a motion to dismiss for

failure to prosecute and for a penalty under section 6673.    On

October 11, 2000, petitioners responded to respondent’s motion by

filing a motion to dismiss for lack of jurisdiction claiming that

the notice of deficiency was improper and making protester type

arguments.   Petitioners’ motion to dismiss for lack of

jurisdiction was denied.

     On October 16, 2000, this case was called for trial in San
                               - 7 -

Francisco, California.   Due to petitioners’ failure to appear, we

orally dismissed the case for lack of prosecution as to

petitioners' liability for the income tax deficiencies, and

respondent’s motion for a section 6673 penalty was taken under

advisement.   On November 24, 2000, petitioners filed a document

with the Court continuing to make protester type arguments.

Based upon those types of arguments, petitioners asserted that

they were not liable for any taxes, respondent had not proven

that they owed any taxes, and this Court, in any event, lacked

jurisdiction with regard to the dispute.

                            Discussion

     Rule 123(b) provides that the Court may dismiss a case at

any time and enter a decision against a petitioner if he fails to

properly prosecute his case or to comply with the Rules or any

order of the Court.   Rule 123(b) generally applies in situations

where a petitioner bears the burden of proof; see also Rule

142(a) (providing that the burden of proof is on a petitioner

unless otherwise provided by statute or determined by the Court);

Welch v. Helvering, 290 U.S. 111, 115 (1933).

     We note that when this case was called for trial, respondent

represented that the examination in the instant case commenced

after the effective date of section 7491.   See Internal Revenue

Service Restructuring & Reform Act of 1998 (RRA 1998), Pub. L.

105-206, sec. 3001(c), 112 Stat. 685, 727 (providing that sec.
                               - 8 -

7491 is applicable to court proceedings arising in connection

with examinations commenced after July 22, 1998).   Under section

7491(a), Congress provided that if a taxpayer presents credible

evidence and meets certain other prerequisites, the Commissioner

shall bear the burden of proof with regard to factual issues

relating to the liability of the taxpayer for a tax imposed under

subtitle A or B.   Because petitioners failed to appear and

present credible evidence, the burden of proof is not placed on

respondent under section 7491(a).

     As to the accuracy-related penalties imposed by respondent,

Congress provided in section 7491(c) that the Commissioner bears

the burden of production in any court proceeding with regard to

the liability of the taxpayer for such penalties.   In Higbee v.

Commissioner, 116 T.C. ___, ___ (2001) (slip op. at 15), we

stated that this provision requires that the Commissioner come

forward with sufficient evidence indicating that it is

appropriate to impose the relevant penalties.   However, the

Commissioner does not have the obligation to introduce evidence

regarding elements such as reasonable cause or substantial

authority.   See id.

     Petitioners failed to appear at trial and submitted only tax

protester type material to the Court.   During the litigation,

respondent attempted to obtain informal and formal discovery from

petitioners without success.   As noted in our background
                               - 9 -

discussion, petitioners are deemed to have admitted certain

facts.   The deemed admissions were made pursuant to Rule 90(c).

By the deemed admissions, petitioners are deemed to admit certain

facts, which when taken together, establish that they failed to

exercise the due care of a reasonable and ordinarily prudent

person under like circumstances.   For example, petitioners are

deemed to admit that they invested in abusive trusts and that

they refused to cooperate or provide documents to respondent

during the examination of petitioners' 1995 and 1996 Federal

income tax returns.   We conclude that respondent met his burden

of production under section 7491(c) with regard to the accuracy-

related penalties determined based on negligence or disregard of

rules or regulations.2   See Rule 90(c); Nis Family Trust v.

Commissioner, 115 T.C. 523, 542-543 (2000).    Because respondent

met his burden of production through the deemed admissions and

petitioners failed to disprove respondent’s determinations (e.g.,

by proving reasonable cause), we hold that petitioners are liable

for the accuracy-related penalties in issue.   See secs.

6662(b)(1), 6664(c); Higbee v. Commissioner, supra.    In that

respect, respondent's motion to dismiss for failure to prosecute

insofar as it relies on the deemed admissions will be treated and

granted as a motion for partial summary judgment.


     2
        We therefore need not address respondent’s determination
of the accuracy-related penalties based on a substantial
understatement of tax.
                              - 10 -

     Finally, section 6673(a) authorizes this Court to penalize a

taxpayer who (1) institutes or maintains a proceeding primarily

for delay, (2) pursues a position in this Court which is

frivolous or groundless, or (3) unreasonably fails to pursue

available administrative remedies.     Petitioners’ conduct in this

case has convinced us that all of the above factors are present

in this proceeding.   Petitioners’ repeated failure to comply with

respondent’s discovery requests, even in the face of orders from

the Court directing them to do so, has resulted in a waste of

limited judicial and administrative resources that could have

been devoted to resolving bona fide claims of other taxpayers.

See Cook v. Spillman, 806 F.2d 948 (9th Cir. 1986).     Further,

petitioners have failed to seek settlement at the administrative

level.   Lastly, petitioners’ insistence on making protester type

arguments even after we have summarily dismissed them indicates

an unwillingness on the part of petitioners to respect the tax

laws of the United States.   Accordingly, we shall grant

respondent’s motion and require petitioners to pay a penalty to

the United States pursuant to section 6673 in the amount of

$15,000.

     To reflect the foregoing,

                                           An appropriate order and

                                     decision will be entered.
