                             T.C. Memo. 1997-419



                        UNITED STATES TAX COURT



                 CHARLES M. WORTHLEY, Petitioner v.
            COMMISSIONER OF INTERNAL REVENUE, Respondent



       Docket No. 2612-94.                   Filed September 22, 1997.



       Charles M. Worthley, pro se.

       Gary S. Gross, for respondent.



                MEMORANDUM FINDINGS OF FACT AND OPINION


       FOLEY, Judge:   Respondent determined the following

deficiency and additions to tax relating to petitioner's Federal

income taxes:

                                              Additions to Tax
Year              Deficiency             Sec. 6653(b)   Sec. 6654

1979                  --                    $20,605         --
1980               $38,636                  108,414      $2,277
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As an alternative position, respondent in his answer asserted

that petitioner is liable for additions to tax pursuant to

sections 6651(a) and 6653(a).   Unless otherwise stated, all

section references are to the Internal Revenue Code in effect for

the years in issue, and all Rule references are to the Tax Court

Rules of Practice and Procedure.

     On April 10, 1995, respondent, pursuant to Rule 91(f),

submitted a Motion to Show Cause Why Proposed Facts In Evidence

Should Not Be Accepted As Established.   Respondent attached a

stipulation of facts and related exhibits to the motion.    This

Court:   (1) On April 12, 1995, granted respondent's motion and

issued an order requiring petitioner to show cause why the facts

set forth in respondent's motion should not be deemed admitted;

(2) on April 21, 1995, filed petitioner's response to this

Court's order to show cause; and (3) on April 26, 1995, ordered

that certain facts contained in respondent's Stipulation of Facts

be deemed stipulated.

     On February 13, 1996, respondent served requests for

admissions on petitioner.   Petitioner did not respond to the

requests and, as a result, the facts contained therein were

deemed admitted.   Rule 90(c); Freedson v. Commissioner, 65 T.C.

333, 334-336 (1975), affd. 565 F.2d 954 (5th Cir. 1978).

     This case was called from the calendar of this Court's May

13, 1996, trial session in Boston, Massachusetts, and petitioner
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failed to appear in person or through counsel.     Respondent filed

a motion asking this Court to find petitioner in default and

enter a decision against him.     By order dated November 5, 1996,

this Court granted respondent's motion in part and held

petitioner liable for the underlying deficiency and the section

6654(a) addition to tax.     This Court denied respondent's motion

with respect to the section 6653(b) additions to tax and restored

the case to the general docket for trial.

     This case was subsequently called from the calendar of this

Court's April 28, 1997, trial session in Boston, Massachusetts.

Petitioner failed to appear in person or through counsel, and

respondent rested on the facts previously established pursuant to

Rules 91(f) and 90(c).

     Respondent, on brief, conceded that petitioner is not liable

for the section 6653(b) addition to tax relating to petitioner's

1979 tax year.     As a result, the issues we must decide are as

follows:

     1.    Whether petitioner, pursuant to section 6653(b), is

liable for an addition to tax for fraud relating to his 1980 tax

year.     We hold that he is liable.

     2.    Whether petitioner, pursuant to section 6651(a), is

liable for an addition to tax for failing to file his 1979

Federal income tax return in a timely manner.     We hold that he is

liable.
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     3.   Whether petitioner, pursuant to section 6653(a), is

liable for an addition to tax for negligence relating to his 1979

tax year.   We hold that he is liable.

                         FINDINGS OF FACT

     Petitioner resided in Gerona, Spain, at the time his

petition was filed.   During the years in issue, he was employed

by Measurex Corp. (Measurex), a California corporation, and by

Saab-Totem, Inc. (Saab-Totem), a Washington corporation.

     In 1980, petitioner received a $5,845 vacation allowance

from Measurex and realized a $328,455.37 long-term capital gain

attributable to the sale of 12,500 shares of Measurex stock.

During that year, he also submitted to Measurex and Saab-Totem

Forms W-4E.   On these forms petitioner stated, under penalties of

perjury, that he incurred no income tax liability for 1979 and

that he anticipated no income tax liability for 1980.

     Petitioner submitted to respondent two tax forms relating to

1979 and three tax forms relating to 1980.   On April 18, 1980,

and April 17, 1981, respondent received Forms 1040 relating,

respectively, to petitioner's 1979 and 1980 tax years.

Petitioner, on these forms, provided objections, based on the

Fifth Amendment privilege against self-incrimination, to the tax

return filing requirement.   After receiving these forms, the

Internal Revenue Service (IRS) began investigating petitioner's

1979 and 1980 tax liability.   On August 13, 1981, petitioner

wrote a letter to Don Waite, an employee of Measurex, suggesting
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the following methods by which Measurex could delay the IRS

investigation of petitioner:   "One way to 'delay' would be to

write Regan asking him for a schedule of payment fees for the

documents.   A second way would be to submit copies of only the

front of the checks in the first submission."

     On February 11 and 12, 1982, respondent received revised

Forms 1040 relating, respectively, to petitioner's 1979 and 1980

tax years.   Petitioner, on the 1979 form, reported gross income

of $83,082 and a tax liability of $41,210.    Petitioner, on the

1980 form, reported wages of $182,352.    Petitioner crossed out

the declarations that these forms were being submitted under

penalties of perjury.

     On January 21, 1983, respondent received a Form 1040X

relating to petitioner's 1980 tax year.    Petitioner reported a

tax liability of $178,191 and signed the form under penalties of

perjury, but he failed to report the $5,845 vacation allowance

and the $328,455.37 long-term capital gain.

     On April 9, 1986, a criminal information was filed in the

U.S. District Court for the Western District of Washington

charging petitioner, pursuant to section 7203, with willful

failure to file 1979 and 1980 Federal income tax returns.

Thereafter, petitioner left the country.    On July 22, 1987, a

U.S. Magistrate issued a bench warrant for petitioner's arrest.

On April 8, 1991, officers from the U.S. Customs Service arrested

petitioner at Logan International Airport in Boston,
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Massachusetts.    On April 26, 1991, before the U.S. District Court

for the District of Massachusetts, petitioner pled guilty to

willfully failing to file, in violation of section 7203, his 1980

Federal income tax return.    The charge relating to his 1979

return was dismissed.    On June 24, 1991, petitioner was

convicted, sentenced to 6 months' imprisonment, and fined $5,000.

                                 OPINION

I.   Addition to Tax for Fraud

      Respondent determined that petitioner, pursuant to section

6653(b), is liable for an addition to tax for fraud relating to

his 1980 tax year.    Section 6653(b) provides that if any part of

an underpayment of tax required to be shown on a return is due to

fraud, there shall be added to the tax an amount equal to 50

percent of the underpayment.

      Fraud is defined as an intentional wrongdoing designed to

evade tax.    Powell v. Granquist, 252 F.2d 56, 60 (9th Cir. 1958);

Miller v. Commissioner, 94 T.C. 316, 332 (1990).      Respondent

bears the burden of proving fraud by clear and convincing

evidence.    Sec. 7454(a); Rule 142(b).    To carry the burden of

proof, respondent must show for each year in issue that an

underpayment of tax exists and that some portion of the

underpayment is due to fraud.      Petzoldt v. Commissioner, 92 T.C.

661, 699 (1989).
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     A.    Underpayment

     Where a taxpayer does not file a return, the underpayment

equals the correct tax due.     See sec. 6653(c)(1).   Respondent

contends that petitioner underpaid his taxes by $216,827 (i.e.,

the amount that respondent contends is the correct tax due).        In

1983, petitioner reported and paid $178,191 of his 1980 tax

liability.    Respondent contends that the remaining portion of the

underpayment, $38,636, was attributable to petitioner's failure

to report as income:      (1) The $5,845 vacation allowance; (2) the

$328,455.37 long-term capital gain (resulting in a $79,024

increase in net capital gain income); and (3) $3,468 that

Measurex paid the IRS in satisfaction of petitioner's Federal

income tax liability.     Respondent has established by clear and

convincing evidence that there is an underpayment of petitioner's

tax for 1980.

     B.    Fraudulent Intent

     To prove fraud, respondent must establish that petitioner

intended to evade taxes through conduct designed to conceal,

mislead, or otherwise prevent the collection of taxes.      Rowlee v.

Commissioner, 80 T.C. 1111, 1123 (1983).      Fraudulent intent is

not to be imputed or presumed but may be established by

circumstantial evidence and reasonable inferences drawn from the

facts.    Spies v. United States, 317 U.S. 492, 499 (1943);

Petzoldt v. Commissioner, supra; Stephenson v. Commissioner, 79

T.C. 995, 1006 (1982), affd. 748 F.2d 331 (6th Cir. 1984).      The
                                 - 8 -


taxpayer's entire course of conduct may establish the requisite

fraudulent intent.     Stone v. Commissioner, 56 T.C. 213, 223-224

(1971).

     Petitioner, pursuant to section 7203, was convicted of

willfully failing to file his 1980 Federal income tax return.

While a taxpayer's failure to file a tax return does not,

standing alone, establish fraud, an inference of fraud is

justified when the failure to file is coupled with other badges

of fraud (i.e., circumstances that establish an intent to conceal

or mislead).     Recklitis v. Commissioner, 91 T.C. 874, 910-911

(1988).   These badges include filing false Forms W-4 and failing

to cooperate with tax authorities.       Id. at 911-912; Rowlee v.

Commissioner, supra at 1124-1125.

     In 1980, petitioner submitted Forms W-4E to his employers.

On these forms petitioner stated, under penalties of perjury,

that he incurred no income tax liability for 1979 and anticipated

no income tax liability for 1980.    Petitioner incurred a 1979 tax

liability of $41,210 and during 1980 received wages of $182,352.

We find that petitioner knowingly submitted false Forms W-4E to

his employers.    In addition, he encouraged Measurex to delay

respondent's investigation of his 1980 tax liability.      These

facts, coupled with petitioner's willful failure to file his 1980

tax return, establish the requisite fraudulent intent.

Accordingly, we hold that petitioner is liable for the section

6653(b) addition to tax.
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II.    Addition to Tax for Failing To File a Return in a Timely
       Manner

       Respondent contends that petitioner, pursuant to section

6651(a), is liable for an addition to tax for failing to file his

1979 Federal income tax return in a timely manner.    Respondent

bears the burden of proof relating to this issue because this

contention was made for the first time in the answer.     Rule

142(a).

       In 1979, petitioner had gross income of $83,082.   Thus, his

gross income exceeded the sum of the applicable standard

deduction and personal exemption, and he was required to file a

Federal income tax return.    See sec. 6012.   Neither of the Forms

1040 petitioner provided respondent for 1979 were returns because

they either did not contain sufficient information to compute

petitioner's tax liability or were not signed under penalties of

perjury.    See sec. 6065; Cupp v. Commissioner, 65 T.C. 68, 78-79

(1975), affd. without published opinion 559 F.2d 1207 (3d Cir.

1977).    Therefore, petitioner failed to file his 1979 tax return

in a timely manner, and we hold that he is liable for the section

6651(a) addition to tax.

III.    Addition to Tax for Negligence

       Respondent contends that petitioner, pursuant to section

6653(a), is liable for an addition to tax for negligence relating

to his 1979 tax year.    Respondent bears the burden of proof

relating to this issue because this contention was made for the
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first time in the answer.   Rule 142(a).   Section 6653(a) provides

that if any part of an underpayment of tax required to be shown

on a return is due to negligence or intentional disregard of

rules and regulations, there shall be added to the tax an amount

equal to 5 percent of the underpayment.

     Petitioner's 1979 tax liability was $41,210, but he failed

to file a return.   Therefore, petitioner had an underpayment of

$41,210.   See secs. 6211, 6653(c)(1).   In addition, petitioner

intentionally disregarded applicable rules and regulations

requiring the filing of a return and the reporting of income.

Accordingly, we hold that he is liable for the section 6653(a)

addition to tax.

     All other arguments made by the parties are either

irrelevant or without merit.

     To reflect the foregoing,


                                           Decision will be entered

                                    under Rule 155.
