                        T.C. Memo. 2009-12



                      UNITED STATES TAX COURT



                EDWARD R. VOCCOLA, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 5398-06.               Filed January 15, 2009.



     Edward R. Voccola, pro se.

     Nina P. Ching, for respondent.



                        MEMORANDUM OPINION


     NIMS, Judge:   This matter is before the Court on

respondent’s motion for summary judgment under Rule 121.   Unless

otherwise indicated, all Rule references are to the Tax Court

Rules of Practice and Procedure, and all section references are

to the Internal Revenue Code in effect for the years in issue.
                               -2-

     Respondent determined the following deficiencies, penalties,

and addition with respect to petitioner’s Federal income tax:

                                Penalty         Addition to Tax
   Year       Deficiency        Sec. 6663        Sec. 6651(a)(1)1

  1999         $218,567        $163,925.25            $14,429
  2000          338,277         253,529.25                --
     1
      Respondent’s motion for summary judgment incorrectly states
the sec. 6651(a)(1) addition to tax as sec. 6651(a)(2). The
notice of deficiency, dated Dec. 16, 2005, states the addition as
sec. 6651(a)(1).

     The issues for consideration are:   (1) Whether petitioner

underreported income during the years in issue; (2) whether

petitioner is liable for the addition to tax for failure to

timely file a return under section 6651(a)(1); and (3) whether

petitioner is liable for fraud penalties under section 6663.

                           Background

     On December 16, 2005, respondent sent petitioner notices of

deficiency for the 1999 and 2000 tax years.   Petitioner filed a

petition with this Court on March 15, 2006, challenging the

determined deficiencies, addition to tax, and penalties.   At the

time he filed his petition, petitioner resided in Massachusetts.

On May 12, 2006, respondent filed an answer to the petition.    The

answer included an affirmative allegation of fraud.   Petitioner

did not file a reply.

     On August 7, 2006, pursuant to Rule 37(c), respondent moved

for entry of an order that the undenied allegations in the answer

be deemed admitted (Rule 37(c) motion) by petitioner.   The Court
                                 -3-

ordered petitioner to file a reply by August 30, 2006, but

petitioner never did so.1   On September 19, 2006, the Court

granted respondent’s Rule 37(c) motion and deemed admitted

paragraphs 5(a) through (bbb) of respondent’s answer.

     On April 4, 2007, respondent filed a motion for summary

judgment on the basis of the deemed admissions.    The Court

ordered petitioner to file a response by April 23, 2007, but he

did not do so.    The Court heard respondent’s motion on May 21,

2007.    Petitioner did not appear at the hearing and did not file

a Rule 50(c) statement in lieu of an appearance.

     Respondent’s motion for summary judgment requests that we

sustain the deficiencies, addition to tax, and penalties

determined in the notices of deficiency.   Respondent contends the

facts deemed admitted under Rule 37(c) are sufficient to satisfy

his burdens of proof as to the deficiencies, addition to tax, and

penalties.

     The deemed admissions under Rule 37(c) establish the

following facts.




     1
      The Court’s order dated Aug. 8, 2006, on respondent’s Rule
37(c) motion directing petitioner to file a reply was returned to
the Court marked “unclaimed”, but petitioner later received a
copy of the order granting the Rule 37(c) motion enclosed in a
letter respondent sent to petitioner on Feb. 27, 2007, almost 3
full months before the hearing on respondent’s motions for
summary judgment.
                                -4-

     Petitioner omitted income and claimed false deductions on

his 1999 and 2000 income tax returns as part of a 10-year pattern

of intentionally evading tax.

     On March 29, 2000, petitioner was indicted on three counts

of tax evasion in violation of section 7201.    Petitioner was

charged with filing fraudulent joint income tax returns for the

1993, 1994, and 1995 taxable years, in that they overstated

itemized deductions, reported negative taxable income, and

reported a tax liability of zero.     Petitioner pleaded guilty to

all 3 counts, and the U.S. District Court for the District of

Massachusetts entered judgment accordingly on December 30, 2000.

     On September 10, 2002, petitioner was indicted on 11 counts

of securities fraud, 2 counts of falsely representing Social

Security numbers, 4 counts of mail fraud, and 1 count of wire

fraud.   Petitioner pleaded guilty to all of the charges.

     For the tax years at issue, petitioner filed Forms 1040,

U.S. Individual Income Tax Return, Forms 1045, Application for

Tentative Refund, and Forms 1040X, Amended U.S. Individual Income

Tax Return, to claim losses and generate refunds to which he was

not entitled for those years.

     On December 11, 2000, petitioner filed a late return for the

1999 tax year as a married individual filing separately.

Petitioner claimed and received a refund of $18,509.    Petitioner

then filed a timely return for the 2000 tax year, reporting a
                                -5-

liability of $35,815 and an overpayment of $140,178.   Respondent

made adjustments to petitioner’s return and recomputed his total

tax liability as $54,939.

     Petitioner then filed a return for the 2001 tax year and

reported a tax liability of zero and a $164,418 loss on Schedule

C, Profit or Loss From Business.   Petitioner also filed a Form

1045 for the 1999 tax year, whereby petitioner claimed a

carryback net operating loss of $159,755 resulting from the

claimed loss in the 2001 taxable year.   Respondent accordingly

issued petitioner a refund of $66,247 on March 25, 2002.

     On or about May 8, 2002, petitioner filed a Form 1040X for

the 2001 tax year, increasing his Schedule C loss to $295,185.

He also requested another refund for the 1999 tax year, claiming

a carryback net operating loss of $290,400 as a result of the

increased Schedule C loss for the 2001 tax year.   Respondent

accordingly issued petitioner a $52,410 refund on July 1, 2002.

     On or about October 16, 2002, petitioner submitted a second

Form 1040X for the 2001 tax year which further increased his

Schedule C loss for that year to $521,757.   Petitioner again

requested a refund for the 1999 tax year, claiming a carryback

net operating loss of $393,338 resulting from the increased 2001

Schedule C loss.   This reduced petitioner’s tax liability for

1999 to zero, and the remaining claimed net operating loss of

$123,754 was carried forward to the 2000 tax year.   At the same
                                  -6-

time petitioner also requested a refund for the 2000 tax year.

On January 6, 2003, respondent issued petitioner refunds for both

years of $23,455 and $27,671.12, respectively.

     On or about June 1, 2004, petitioner submitted a Form 1040X

for the 2000 tax year, claiming a net operating carryback loss of

$130,368.   Petitioner then requested a refund of $28,151, but

respondent rejected this claim.

     After the carrybacks and carryforwards on his 1999 and 2000

tax returns, petitioner’s reported taxable income was negative

$29,917 and negative $43,874, respectively.    His reported tax

liabilities were zero and $28,395, respectively.

     Petitioner prepared these returns himself.     Petitioner holds

a master’s degree in business administration from Temple

University Graduate School of Business, a juris doctor degree

from Suffolk University School of Law, and a master of laws

degree in taxation from Boston University School of Law.     He also

has years of work experience as a tax specialist.

     Petitioner’s correct taxable income in those years was

actually $577,603 and $937,038.    Petitioner claimed

unsubstantiated Schedule C losses totaling $175,439 and $413,038

and unsubstantiated net operating loss carrybacks of $393,338 and

$123,754, respectively.   Petitioner also failed to report

interest and dividend income received in both years.
                                 -7-

     Petitioner’s correct tax liabilities for 1999 and 2000 were

$218,567 and $366,672, respectively.      Thus, petitioner

understated his income tax liabilities by $218,567 and $338,277.

     In support of his 2000 tax return, petitioner submitted a

Form W-2, Wage and Tax Statement, purportedly from State Street

Bank & Trust Co. (SSB&T).    This Form W-2 understated his wage

income for the year and was not the one actually prepared or

issued by SSB&T.   On Schedules C of his returns for the 1999 and

2000 tax years, petitioner also wrongfully claimed he was a

“trader in securities” using a “mark-to-market” accounting

method.   Petitioner failed to maintain complete and accurate

records of his income-producing activities and to produce such

records to respondent in connection with the examination of his

1999 and 2000 tax returns.

                             Discussion

     Summary judgment may be granted when 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).      The opposing

party cannot rest upon mere allegations or denials in his

pleadings and must “set forth specific facts showing that there

is a genuine issue for trial.”    Rule 121(d).    The moving party

bears the burden of proving there is no genuine issue of material

fact, and factual inferences will be read in a manner most
                                -8-

favorable to the party opposing summary judgment.    Dahlstrom v.

Commissioner, 85 T.C. 812, 821 (1985); Jacklin v. Commissioner,

79 T.C. 340, 344 (1982).

     The first issue for decision is whether we should grant

respondent summary judgment as to the deficiencies for the years

in question.

     Respondent’s motion is supported by petitioner’s failure to

answer the affirmative allegations in the answer.    Where a reply

is not filed, the affirmative allegations in the answer will be

deemed denied unless the Commissioner, within 45 days after

expiration of the time for filing the reply, files a motion that

specified allegations in the answer be deemed admitted.   Rule

37(c).   Facts deemed admitted under Rule 37(c) are considered

conclusively established and may be relied on by the Commissioner

even when he bears the burden of proof.   Baptiste v.

Commissioner, 29 F.3d 1533, 1537 (11th Cir. 1994), affg. T.C.

Memo. 1992-198.

     In his answer, respondent alleged that petitioner

understated income by neglecting to report interest and dividends

received, underreporting wages, and failing to substantiate

claimed losses.   Because petitioner did not reply to these

allegations and the Court granted respondent’s Rule 37(c) motion,

petitioner is deemed to have admitted these facts.   These

admissions are adequate to support respondent’s burden of proving
                                -9-

no genuine issue of material fact exists as to the deficiency

determinations.   Accordingly, we will grant respondent’s motion

as to the deficiencies determined for the years in issue.

     The second issue for decision is whether we should grant

respondent’s motion for summary judgment as to the section

6651(a)(1) addition to tax for the 1999 tax year.

     Section 6651(a)(1) provides for an addition to tax of up to

25 percent for failure to timely file a return unless such

failure was due to reasonable cause and not willful neglect.

United States v. Boyle, 469 U.S. 241, 245 (1985); Baldwin v.

Commissioner, 84 T.C. 859, 870 (1985).   Since petitioner did not

deny the affirmative allegation that he filed his 1999 return

late, he is deemed to have admitted this fact and is liable for

the addition to tax under section 6651(a)(1).   We accordingly

will grant respondent’s motion for summary judgment as to the

section 6651(a)(1) addition to tax.

     The third issue is whether we should grant respondent’s

motion for summary judgment as to the section 6663 fraud

penalties.

     Section 6663 imposes a penalty equal to 75 percent of the

portion of any underpayment attributable to fraud.   The

Commissioner bears the burden of proving by clear and convincing

evidence that an underpayment exists and that some portion of the

underpayment for each year is due to fraud with the intent to
                                   -10-

evade tax.    Sec. 7454(a); Rule 142(b).      Deemed admissions under

Rule 37(c) are sufficient to satisfy this burden.         Doncaster v.

Commissioner, 77 T.C. 334, 336-338 (1981).

       Petitioner’s deemed admissions also satisfy respondent’s

burden of proof for the section 6663 fraud penalties.        Petitioner

is deemed to have admitted that he fraudulently omitted income

and claimed false deductions as part of a plan to evade tax.

These admissions sufficiently establish that some portion of the

underpayment for each year was due to fraud with intent to evade

tax.    We, therefore, will grant respondent’s motion for summary

judgment as to the section 6663 penalties.

       To reflect the foregoing,


                                               An appropriate order and

                                          decision will be entered.
