                         T.C. Memo. 2005-181



                       UNITED STATES TAX COURT



   SHEILA D. CLINKSCALE & JANTZ S. CLINKSCALE, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No.   6886-01.             Filed July 25, 2005.



     Robert J. Fedor, Jr., for petitioner Sheila D. Clinkscale.

     Jantz S. Clinkscale, pro se.

     John M. Tkacik, Jr., for respondent.



                         MEMORANDUM OPINION


     CHIECHI, Judge:    This case is before the Court on respon-

dent’s motion for summary judgment (respondent’s motion) against

petitioner Jantz S. Clinkscale (Mr. Clinkscale) for the taxable
                               - 2 -

years 1994, 1995, and 1996.1   We shall grant respondent’s motion.

                           Background

     Pursuant to the Court’s Order issued under Rule 37(c),2 all

of the affirmative allegations in the answer are deemed admitted.

Respondent also represents certain additional facts in respon-

dent’s motion that Mr. Clinkscale does not dispute.

     Mr. Clinkscale was incarcerated in Ashland, Kentucky, at the

time the petition in this case was filed.

     During each of the years 1994, 1995, 1996, and 1997, Mr.

Clinkscale (1) engaged in a criminal enterprise to distribute

cocaine from which he earned substantial income; (2) conducted

financial activities in currency (i.e., cash) with the intent to

evade Federal income tax (tax); (3) structured various financial

activities in an attempt to avoid Federal reporting requirements

with the intent to evade tax; and (4) failed to maintain complete

and adequate books and accounts of income-producing activities as

required by applicable provisions of the Code and the regulations



     1
      Respondent’s motion pertains only to Mr. Clinkscale. That
is because petitioner Sheila D. Clinkscale (Ms. Clinkscale) and
respondent filed a stipulation of settled issues in which Ms.
Clinkscale agreed to all of the determinations for the taxable
years 1994, 1995, and 1996 that respondent made in the notice of
deficiency (notice) that respondent issued to her and Mr.
Clinkscale. For convenience, we shall hereinafter generally
refer only to Mr. Clinkscale.
     2
      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 -

thereunder.

     Mr. Clinkscale and Ms. Clinkscale filed jointly tax returns

for the taxable years 1994, 1995, 1996, and 1997.   For each of

the taxable years 1994, 1995, 1996, and 1997, Mr. Clinkscale

provided incomplete and/or erroneous information to their tax

return preparers and fraudulently, with the intent to evade tax,

filed a tax return that substantially understated adjusted gross

income.   Specifically, in the joint returns for the taxable years

1994, 1995, 1996, and 1997, Mr. Clinkscale underreported adjusted

gross income shown in such returns by $83,821.91, $101,633.41,

$250,335.10, and $325,199.43, respectively and fraudulently, with

the intent to evade tax, understated tax shown in such returns by

$19,927, $25,238, $71,385, and $107,698, respectively.

     On a date not disclosed by the record after September 2,

1998, and before February 28, 2000, a Federal grand jury in the

United States District Court for the Northern District of Ohio,

Eastern Division, indicted Mr. Clinkscale for, and charged him

with, inter alia, violating (1) 21 U.S.C. section 841(a)(1) and

(b)(1)(A) by possessing cocaine with the intent to distribute

during the period January 1993 through at least September 2,

1998, and (2) 26 U.S.C. section 7206(1) by filing a false and

fraudulent tax return for each of the taxable years 1994, 1995,

1996, and 1997.   On February 28, 2000, Mr. Clinkscale entered

into a plea agreement (Mr. Clinkscale’s plea agreement) in which
                              - 4 -

he pleaded guilty to, inter alia, the above-described first

charge and so much of the above-described second charge as

related only to the taxable year 1997.3   Mr. Clinkscale acknowl-

edged in Mr. Clinkscale’s plea agreement:

          3.   The defendant, Jantz S. Clinkscale, acknowl-
     edges that the computation of additional adjusted gross
     income set forth on Attachment A to this agreement is
     accurate. Defendant acknowledges his liability for
     additional tax, penalties, and interest based upon the
     additional adjusted gross income set forth on Attach-
     ment A.

Attachment A to Mr. Clinkscale’s plea agreement showed, inter

alia, additional adjusted gross income for the taxable years

1994, 1995, 1996, and 1997 of $83,821.91, $101,633.41,

$250,335.10, and $325,199.43, respectively.

     Respondent issued a notice to Mr. Clinkscale and Ms.


     3
      Mr. Clinkscale acknowledged in Mr. Clinkscale’s plea
agreement:

          15.   The defendant, Jantz S. Clinkscale, * * *
     acknowledge[s] that no threats, promises, or
     representations have been made, nor agreements reached,
     other than those set forth in this agreement, to induce
     the defendant, Jantz S. Clinkscale, to plead guilty.
     This plea agreement sets forth the full and complete
     terms and conditions of the agreement between
     defendant, Jantz S. Clinkscale, and the United States.

         *      *       *       *         *      *       *

          17.   The defendant, Jantz S. Clinkscale, as
     indicated by his signature below, states that she [sic]
     has read this plea agreement, has discussed it with his
     attorney, has had all questions concerning the meaning
     and impact of the plea agreement fully and
     satisfactorily answered by his attorney, and
     understands the terms of the plea agreement.
                                     - 5 -

Clinkscale in which respondent determined that Mr. Clinkscale and

Ms. Clinkscale underreported adjusted gross income for the

taxable years 1994, 1995, 1996, and 1997 by $83,822, $101,633,

$250,335, and $325,199, respectively,4 and that they have defi-

ciencies in tax for those years of $19,927, $25,238, $71,385, and

$107,698, respectively.         Respondent also determined in the notice

that Mr. Clinkscale and Ms. Clinkscale are liable for the taxable

years 1994, 1995, 1996, and 1997 for fraud penalties under

section 6663(a) of $14,945.25, $18,928.50, $53,538.75, and

$80,773.50, respectively.

     The petition filed in this case alleged:

          1.   Petitioner(s) disagree(s) with the tax defi-
     ciency(ies) for the year(s) 1994, 95, 96 as set forth
     in the NOTICE OF DEFICIENCY dated April 12, 2001 * * *

         *          *       *          *      *       *        *

             3.     Petitioner(s) dispute(s) the following:

                        Amount of Defi-         Addition to Tax
                             ciency            (Penalty) if any,
             Year           Disputed                 Disputed

             1994          All total               All total
             1995          All total               All total
             1996          All total               All total


          4.   * * * As set forth in plea agreement, all
     taxes from 1994, 95 96 have been dismissed only 1997 is
     in question. Appeals are in concerning 1997 and await-


     4
      Respondent utilized the bank deposits method in order to
reconstruct Mr. Clinkscale and Ms. Clinkscale’s adjusted gross
income for each of the taxable years 1994, 1995, 1996, and 1997.
                                 - 6 -

     ing judgement. At that time final, if any, taxes &
     penalties due will be assesed. (Please refer to The
     United States District Court for the Northern District
     of Ohio Eastern Division Case No 99-00368) [Reproduced
     literally.]

                              Discussion

     Respondent’s motion pertains to the taxable years 1994,

1995, and 1996.    The notice that respondent issued to Mr.

Clinkscale and Ms. Clinkscale also made determinations for the

taxable year 1997.    We conclude that the petition filed in this

case placed in issue only the taxable years 1994, 1995, and 1996

and that the taxable year 1997 is not before the Court.    See,

e.g., O’Neil v. Commissioner, 66 T.C. 105 (1976).

     The Court may grant summary judgment where there is no

genuine issue of material fact and a decision may be rendered as

a matter of law.     Rule 121(b); Sundstrand Corp. v. Commissioner,

98 T.C. 518, 520 (1992), affd. 17 F.3d 965 (7th Cir. 1994).

     All of the facts on which respondent relies in respondent’s

motion have been deemed admitted and/or not disputed.    The facts

deemed admitted include the material facts on which we may

proceed to resolve the issues in respondent’s motion, including

the issue relating to the fraud penalties under section 6663(a),

see, e.g., Doncaster v. Commissioner, 77 T.C. 334, 337 (1981).

We conclude that there are no genuine issues of material fact

regarding the issues raised in respondent’s motion.

     The Court gave Mr. Clinkscale ample opportunity to inform
                               - 7 -

the Court in writing why he believes that respondent’s motion

should be denied.   He failed to do so.5

     With respect to respondent’s determinations that Mr.

Clinkscale has a deficiency in tax for each of the taxable years

1994, 1995, and 1996, on the record presented, we sustain those

determinations.

     With respect to respondent’s determinations that Mr.

Clinkscale is liable for the fraud penalty under section 6663(a)

for each of the taxable years 1994, 1995, and 1996, section

6663(a) imposes a penalty equal to 75 percent of the portion of

any underpayment that is attributable to fraud.   For purposes of

section 6663(a), if the Commissioner of Internal Revenue (Commis-

sioner) establishes 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.   Sec. 6663(b).   In

order for the fraud penalty to apply, the Commissioner must prove

by clear and convincing evidence, sec. 7454(a); Rule 142(b), that

an underpayment exists and that some portion of such underpayment

is attributable to fraud.   Niedringhaus v. Commissioner, 99 T.C.

202, 210 (1992).


     5
      The petition alleged that “as set forth in plea agreement,
all taxes from 1994, 95 and 96 have been dismissed”. It is not
clear to us what is meant by that allegation.
                                 - 8 -

     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.     Parks v.

Commissioner, 94 T.C. 654, 660-661 (1990); Petzoldt v. Commis-

sioner, 92 T.C. 661, 700 (1989).     The Commissioner must prove

only that an underpayment exists, and not the precise amount of

such underpayment.     DiLeo v. Commissioner, 96 T.C. 858, 873

(1991), affd. 959 F.2d 16 (2d Cir. 1992); Petzoldt v. Commis-

sioner, supra at 699-700.

         The record establishes that Mr. Clinkscale and Ms.

Clinkscale filed jointly tax returns that substantially under-

stated adjusted gross income and tax for the taxable years 1994,

1995, and 1996, respectively.6    Indeed, Mr. Clinkscale conceded


     6
      Mr. Clinkscale acknowledged in Mr. Clinkscale’s plea
agreement that the computation of additional adjusted gross
income for, inter alia, taxable years 1994, 1995, and 1996 set
forth in Attachment A to Mr. Clinkscale’s plea agreement is
accurate and that he is liable for such years for additional tax,
penalties, and interest based upon such additional adjusted gross
income. Attachment A to Mr. Clinkscale’s plea agreement showed,
inter alia, additional adjusted gross income for the taxable
years 1994, 1995, and 1996 of $83,821.91, $101,633.41, and
$250,335.10, respectively. The respective amounts of adjusted
gross income for those years shown in Attachment A to Mr.
Clinkscale’s plea agreement are the same as the respective
amounts (rounded to the nearest dollar) of adjusted gross income
that respondent determined in the notice Mr. Clinkscale
underreported for those years. The respective amounts of
additional tax for the taxable years 1994, 1995, and 1996 for
which Mr. Clinkscale acknowledged he is liable in Mr.
Clinkscale’s plea agreement are $19,927, $25,238, and $71,385.
Those respective amounts are the same as the respective amounts
of the deficiencies that respondent determined in the notice for
                                                   (continued...)
                                 - 9 -

in Mr. Clinkscale’s supplemental response to respondent’s motion

that “If the respondent is merely stating that they are owed

something, then I concede.”7

     On the instant record, we find that respondent has estab-

lished by clear and convincing evidence that there was an under-

payment of Mr. Clinkscale’s tax for each of the taxable years

1994, 1995, and 1996.

     In order to prove fraudulent intent, the Commissioner must

prove by clear and convincing evidence that the taxpayer intended

to evade tax, which the taxpayer believed to be owing, by conduct

intended to conceal, mislead, or otherwise prevent the collection

of such tax.   Laurins v. Commissioner, 889 F.2d 910, 913 (9th

Cir. 1989), affg. Norman v. Commissioner, T.C. Memo. 1987-265;

Parks v. Commissioner, supra at 661.     The existence of fraud is a

question of fact to be resolved upon consideration of the entire

record.   DiLeo v. Commissioner, supra at 874; Gajewski v. Commis-

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

578 F.2d 1383 (8th Cir. 1978).    Fraud is never presumed or

imputed and should not be found in circumstances which create at

most only a suspicion.   Toussaint v. Commissioner, 743 F.2d 309,


     6
      (...continued)
those years.
     7
      In petitioner’s supplemental response to respondent’s
motion, Mr. Clinkscale further stated: “But there is no specific
amount mentioned, to my knowledge, so therefore I cannot agree to
a dollar amount.”
                              - 10 -

312 (5th Cir. 1984), affg. T.C. Memo. 1984-25; Petzoldt v.

Commissioner, supra at 699-700.   Direct evidence of the requisite

fraudulent intent is seldom available.   Petzoldt v. Commissioner,

supra at 699; Rowlee v. Commissioner, 80 T.C. 1111, 1123 (1983).

Consequently, the Commissioner may prove fraud by circumstantial

evidence.   Toussaint v. Commissioner, supra at 312; Rowlee v.

Commissioner, supra at 1123; see Marsellus v. Commissioner, 544

F.2d 883, 885 (5th Cir. 1977), affg. T.C. Memo. 1975-368.

     The courts have identified a number of badges of fraud from

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

understatement of income, (2) the failure to maintain adequate

records as required by the Code and the regulations, (3) provid-

ing incomplete or erroneous information to a tax return preparer

or bookkeeper, (4) dealing in cash, (5) acts designed to conceal

income, and (6) engaging in illegal activity.   See Bradford v.

Commissioner, 796 F.2d 303, 307-308 (9th Cir. 1986), affg. T.C.

Memo. 1984-601; Ruark v. Commissioner, 449 F.2d 311, 312-313 (9th

Cir. 1971), affg. per curiam T.C. Memo. 1969-48; Niedringhaus v.

Commissioner, supra at 211.   Although no single factor is neces-

sarily sufficient to establish fraud, the existence of several

indicia constitutes persuasive circumstantial evidence of fraud.

Petzoldt v. Commissioner, supra at 700; see Bradford v. Commis-

sioner, supra at 307.

     The record establishes that, during each of the taxable
                             - 11 -

years 1994, 1995, and 1996, Mr. Clinkscale (1) engaged in a

criminal enterprise to distribute cocaine from which he earned

substantial income; (2) conducted financial activities in cur-

rency (i.e., cash) with the intent to evade tax; (3) structured

various financial activities in an attempt to avoid Federal

reporting requirements with the intent to evade tax; and

(4) failed to maintain complete and adequate books and accounts

of income-producing activities as required by applicable provi-

sions of the Code and the regulations thereunder.   The record

also establishes that, for each of the taxable years 1994, 1995,

and 1996, Mr. Clinkscale provided incomplete and/or erroneous

information to tax return preparers and fraudulently, with the

intent to evade tax, filed a tax return that substantially

understated adjusted gross income and tax.

     On the instant record, we find that respondent has estab-

lished by clear and convincing evidence that Mr. Clinkscale

intended to evade tax for each of the taxable years 1994, 1995,

and 1996, which Mr. Clinkscale believed to be owing, by conduct

intended to conceal, mislead, or otherwise prevent the collection

of such tax.

     On the record before us, we sustain respondent’s determina-

tions that Mr. Clinkscale is liable for the fraud penalty under

section 6663(a) for each of the taxable years 1994, 1995, and

1996.
                             - 12 -

     We have considered all of the contentions and arguments of

Mr. Clinkscale that are not discussed herein, and we find them to

be without merit, irrelevant, and/or moot.

     On the record before us, we shall grant respondent’s motion.

     To reflect the foregoing,

                                      An order granting respondent’s

                                 motion and decision for respondent

                                 will be entered.
