                        T.C. Memo. 1997-310



                      UNITED STATES TAX COURT



                 WILLIAM J. TULLY, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent




     Docket No. 21041-96.              Filed July 3, 1997.




     William J. Tully, pro se.


     Linas N. Udrys, for respondent.




                        MEMORANDUM OPINION


     DAWSON, Judge:   This case was assigned to Special Trial

Judge Larry L. Nameroff pursuant to section 7443A(b)and Rules 181
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and 183.1    The Court agrees with and adopts the opinion of the

Special Trial Judge, which is set forth below.

                  OPINION OF THE SPECIAL TRIAL JUDGE

        NAMEROFF, Special Trial Judge:   This matter is before the

Court on respondent's Motion for Summary Judgment.

Background

        On June 27, 1996, respondent mailed a notice of deficiency

to petitioner determining a deficiency in the amount of $176,399

in petitioner's Federal income tax for 1992.     In addition,

respondent determined that petitioner is liable for the penalty

for fraud under section 6663(a) in the amount of $132,299.

Petitioner filed a timely petition for redetermination with the

Court on September 27, 1996, at which time he was a resident of

Ontario, CA.

        Respondent filed a timely answer to the petition which

includes affirmative allegations in support of respondent's

determination that petitioner is liable for the penalty for fraud

for the taxable year in issue.     Petitioner failed to file a reply

to respondent's answer within the 45-day period prescribed in

Rule 37(a).     As a consequence, respondent filed a motion pursuant

to Rule 37(c) requesting that the Court issue an order that

undenied allegations in the answer be deemed admitted.     By notice


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

dated January 14, 1997, petitioner was notified of the filing of

respondent's Rule 37(c) motion and was ordered to file a reply to

respondent's answer.2    Petitioner failed to file a reply to

respondent's answer or otherwise respond to the Court's notice.

Consequently, we granted respondent's Rule 37(c) motion, and the

undenied allegations set forth in respondent's answer were deemed

to be admitted.     See Doncaster v. Commissioner, 77 T.C. 334, 336

(1981); Gilday v. Commissioner, 62 T.C. 260, 261 (1974).

        As indicated, respondent now moves for summary judgment with

respect to petitioner's liability for the deficiency and penalty

set forth in the notice of deficiency.     On April 7, 1997, the

Court issued an order directing petitioner to file a written

response to respondent's motion on or before May 15, 1997.

Petitioner did not respond to the Court's order.

Discussion

        Summary judgment is intended to expedite litigation and

avoid unnecessary and expensive trials.     Florida Peach Corp. v.

Commissioner, 90 T.C. 678, 681 (1988).     Summary judgment may be

granted with respect to all or any part of the legal issues in

controversy "if the pleadings, answers to interrogatories,

depositions, admissions, and any other acceptable materials,

together with the affidavits, if any, show that there is no


    2
       The Court’s notice dated Jan. 14, 1997, expressly advised
petitioner of the potential consequences that would result from a
failure to file a reply.
                                - 4 -

genuine issue as to any material fact and that a decision may be

rendered as a matter of law."     Rule 121(b); see Sundstrand Corp.

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

Cir. 1994); Zaentz v. Commissioner, 90 T.C. 753, 754 (1988);

Naftel v. Commissioner, 85 T.C. 527, 529 (1985).     The moving

party bears the burden of proving that there is no genuine issue

of material fact, and factual inferences will be read in a manner

most 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 factual allegations deemed admitted under Rule 37(c)

establish that during the taxable year 1992, petitioner was

engaged in the business of establishing exempt organizations.

Petitioner conducted seminars at which he encouraged people to

establish exempt organizations, and he informed people that they

could avoid income tax by conducting all their financial

transactions through exempt organizations.3    Petitioner did not

receive fees from people attending his seminars, but he used his

seminars to recruit clients for his business of establishing

exempt organizations.     Petitioner also solicited clients for his

business of establishing exempt organizations through direct

mailings to accountants and certified public accountants.

    3
       Petitioner is apparently the same person who filed the
petition as an officer in the case of Oliver Family Foundation,
docket No. 8346-96X. See Oliver Family Found. v. Commissioner,
T.C. Memo. 1997-220.
                                - 5 -

        In establishing an exempt organization for a client,

petitioner submitted the required filings to the State of Nevada,

and obtained exempt status from the Internal Revenue Service.

Records maintained by the State of Nevada indicate that

petitioner established at least 224 exempt organizations during

the 1992 taxable year.     Eleven exempt organizations were

established by petitioner for his personal use, which used the

address of petitioner’s residence, at 634 East Yale Street in

Ontario, California, or petitioner’s office, at P.O. Box 2030 in

Upland, California, as a business address.     The other 213 exempt

organizations established by petitioner during 1992 were

established for petitioner’s clients.     Petitioner was named as a

vice president of all of these exempt organizations.

        During the year 1992, petitioner charged his clients $3,000

for each exempt organization he established.     Accordingly,

petitioner derived at least $639,000 of income from his business

of establishing exempt organizations during 1992.

        For the taxable year 1992, petitioner, fraudulently and with

intent to evade income tax, filed a false Federal income tax

return which omitted income.     Petitioner and his wife, Luetta M.

Tully, (Mrs. Tully) filed a joint U.S. Individual Income Tax

Return, Form 1040 (hereinafter “1992 return”).4    On their 1992


    4
       Based upon the same notice of deficiency, Mrs. Tully filed
a separate petition, and is a petitioner in a related case docket
No. 21035-96, also currently before this Court.
                              - 6 -

return, petitioner and Mrs. Tully reported Mrs. Tully’s net wages

received from the State Teacher’s Retirement System and the

Ontario-Montclair School District in the amount of $24,527.39.

On their 1992 return, petitioner and Mrs. Tully reported Mrs.

Tully’s interest income, received from the Ontario School

Employee Credit Union, in the amount of $124.

     With the 1992 return, petitioner filed a Schedule C,

Statement of Profit and Loss from Business, for All American

Financial Services (All American).    On his Schedule C, petitioner

stated that All American was a sole proprietorship in the

business of financial consulting and marketing.   On his Schedule

C, petitioner reported gross receipts derived from All American

in the amount of $18,500.   During the taxable year 1992,

petitioner received at least $639,000 of income, derived from his

business of establishing exempt organizations.    Thus, petitioner

earned and intentionally failed to report Schedule C income in

the amount of $620,500.

     Petitioner fraudulently and with the intent to evade income

tax understated taxable income for the 1992 taxable year in the

amount of $620,500.   Petitioner fraudulently and with the intent

to evade income tax understated his tax liability for the taxable

year 1992 in the amount of $176,399.

     In the notice of deficiency, respondent determined, inter

alia, that petitioners omitted $620,500 of income.   Consistent
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with these deemed admissions, it follows that respondent is

entitled to summary judgment that petitioner is liable for the

deficiency in tax for 1992 as set forth in the notice of

deficiency.

     Respondent also determined that petitioner is liable for the

penalty for fraud under section 6663(a) for 1992.    Section

6663(a) provides that, if any part of the underpayment of tax

required to be shown on the return is due to fraud, there shall

be added to the tax an amount equal to 75 percent of the portion

of the underpayment that is attributable to fraud.

     Fraud is defined as an intentional wrongdoing designed to

evade tax believed to be owing.    Edelson v. Commissioner, 829

F.2d 829, 833 (9th Cir. 1987), affg. T.C. Memo. 1986-223;

Bradford v. Commissioner, 796 F.2d 303, 307 (9th Cir. 1986),

affg. T.C. Memo. 1984-601.   Respondent has the burden to prove

fraud by clear and convincing evidence.   Sec. 7454(a); Rule

142(b).   Fraud is a question of fact to be resolved upon

consideration of the entire record and is never presumed.      Estate

of Pittard v. Commissioner, 69 T.C. 391, 400 (1977).

Respondent's burden of proving fraud can be met by facts deemed

admitted pursuant to Rule 37(c).    Doncaster v. Commissioner, 77

T.C. at 337; see Marshall v. Commissioner, 85 T.C. 267, 272-273

(1985).
                                - 8 -

     In the instant case petitioner is deemed to have admitted,

pursuant to Rule 37(c), that he fraudulently and with the intent

to evade taxes filed an income tax return for 1992 in which he

omitted $620,500 in income and that the underpayment of tax

required to be shown on his income tax return for 1992 is due to

fraud with intent to evade income tax.

     We hold that the facts deemed admitted pursuant to Rule

37(c) satisfy respondent's burden of proving fraud.       Doncaster v.

Commissioner, 77 T.C. at 337.    Those facts constitute clear and

convincing evidence that petitioner, fraudulently and with the

intent to evade taxes known to be owing, omitted more than 90

percent of his income earned during 1992 and that the

underpayment of tax required to be shown on his 1992 income tax

return is due to fraud.   Consequently, respondent is entitled to

summary judgment that petitioner is liable for the penalty for

fraud under section 6663(a) for the taxable year 1992.

     In order to reflect our conclusions herein,


                                        An order and decision granting

                                respondent's motion for summary

                                judgment will be entered.
