                        T.C. Memo. 2006-82



                      UNITED STATES TAX COURT



                  HARVEY L. HOOVER, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket Nos. 15557-99, 4590-00L.     Filed April 24, 2006.



     Harvey L. Hoover, pro se.

     Diane L. Worland, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     RUWE, Judge:   These cases were consolidated for purposes of

trial, briefing, and opinion.    On August 20, 1999, respondent

issued a notice of deficiency, which determined deficiencies and

penalties with respect to petitioner’s Federal income taxes as

follows:
                               - 2 -

                                                   Penalty
         Year          Deficiency                Section 6663

         1989           $46,052                  $34,539.00
         1990            38,577                   28,932.75
         1991            52,452                   39,339.00
         1992            23,427                   17,570.25

     The issue for 1989 is whether petitioner has placed

respondent’s deficiency determination in issue.     If he has, the

next issue is whether assessment of the deficiency determined for

1989 is barred by the statute of limitations.

     After concessions by the parties, the issues for decision in

docket No. 15557-99 with respect to 1990, 1991, and 1992 are:

(1) Whether petitioner received and failed to report substantial

amounts of farm income for 1990, 1991, and 1992;1 (2) whether


     1
       Respondent calculated the farming income that petitioner
failed to report on his Federal income tax returns as follows:

    Source              1990              1991                  1992

Best Ever Dairy     $137,801.38        $93,768.46       $108,817.49
Jon Hayes              3,455.00          1,375.00          1,875.00
Ag Max                17,208.11             --                --
Roann                  7,680.00         17,500.00          6,200.00
Rochester Sale Barn      679.85          1,606.55          4,677.45
Stony Pike            12,722.72         11,340.75         10,875.20
Fred Hoover--          5,569.32          7,598.75          4,743.32
  Bartering
Fred Hoover--rent     10,500.00          2,475.00           2,475.00
Total farm income    195,616.38        135,664.51         139,663.46
Less reported
  ordinary farm
  income              21,953.00         14,069.00         20,270.00
Total unreported     173,663.38        121,595.51        119,393.46
  farm income
Less unreported       13,402.57         12,947.30          15,552.65
  capital gains
                                                       (continued...)
                                  - 3 -

petitioner received and failed to report interest income of

$3,069 in 1990, $3,153 in 1991, and $8,784 in 1992; (3) whether

petitioner is entitled to claim a loss of $31,000 in 1991 from

the sale of one of his farms; (4) whether petitioner had farm

expenses in amounts greater than allowed by respondent;2 (5)

whether petitioner is liable for additions to tax for fraud

pursuant to section 66633 for each of the years in issue; and (6)

whether the assessments for 1990, 1991, and 1992 are barred by

the statute of limitations.

     After concessions by the parties, the issues for decision in

docket No. 4590-00L are:   (1) Whether respondent’s Appeals

officer abused his discretion in sustaining the collection action




     1
      (...continued)
  farm income
Net unreported       160,260.81           108,648.21   103,840.81
  ordinary farm
  income
     2
       In the notice of deficiency, respondent determined that
petitioner had farm expenses of $25,969 in 1990, $14,826 in 1991,
and $27,524 in 1992. Respondent now acknowledges in the
stipulation that petitioner’s allowable farm expenses are $63,381
in 1990, $54,652 in 1991, and $55,388 in 1992.
     3
       Unless otherwise indicated, 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.
                                - 4 -

of filing a notice of Federal tax lien; and (2) whether

respondent’s Appeals officer abused his discretion in sustaining

the collection action of issuance of a notice of jeopardy levy.4

                           FINDINGS OF FACT

     Some of the facts have been stipulated and are so found.

The stipulation of facts, the first, second, third, and fourth

supplemental stipulations of facts, and the attached exhibits are

incorporated herein by this reference.    The stipulations of facts

include transcripts and exhibits from petitioner’s criminal

prosecution, which commenced on March 16, 1998.    The stipulations

incorporate the trial testimony of the witnesses from the

criminal prosecution as though it were given during the course of

the trial in this Court.

     The petition in docket No. 15557-99 was filed on September

28, 1999.    The petition in docket No. 4590-00L was filed on April

25, 2000.    When he filed the petitions in these cases, petitioner

was incarcerated in a Federal penitentiary in Elkton, Ohio.     Upon

release from prison in 2002, petitioner resided in Wabash,

Indiana.

     Petitioner married Judith Ann Mosier on or about June 28,

1959.    Michael Hoover and Tadd Hoover are two of the couple’s

children.    Petitioner and Ms. Mosier divorced on July 25, 1990.


     4
       The taxes involved in the collection action are the income
tax liabilities for 1989, 1990, 1991, and 1992 that are in issue
in docket No. 15557-99.
                               - 5 -

Farm Business

     From the 1970s through 1992, farming was petitioner’s

primary source of income.   Michael Hoover and Tadd Hoover worked

for petitioner during the years in issue.

     Beginning in the late 1970s and continuing through 1992,

petitioner’s farming activities included a dairy herd operation.

During the years at issue, petitioner’s dairy herd consisted of

approximately 60 cows, 30 heifers, and 17 calves.    Petitioner

sold all the milk produced by his dairy herd to Best Ever Dairy

of Anderson, Indiana (Best Ever Dairy), from 1989 to 1992.5

     Before October 31, 1988, Best Ever Dairy issued one check

made payable to petitioner for each milk purchase.    By letter

dated September 27, 1988, petitioner instructed Best Ever Dairy

to issue two checks for each milk purchase.   Petitioner directed

Best Ever Dairy to issue one check payable to Michael Hoover in

an amount equal to one-half of the amount due and a second check

payable to petitioner for the balance.   Best Ever Dairy complied

with petitioner’s instructions beginning with its payment made on

October 31, 1988.   Petitioner did not give any of the milk

proceeds to Michael Hoover.

     After petitioner’s September 27, 1988, letter, petitioner

sent an undated letter to Best Ever Dairy that revised the



     5
       From 1988 to 2003, Best Ever Dairy has been known as Best
Ever Dairy, East Side Jersey Dairy, and Prairie Farms Dairy.
                                - 6 -

payment method.    Petitioner directed Best Ever Dairy to issue one

check payable to petitioner in the amount of $10 and a second

check payable to Tadd Hoover in an amount equal to the balance

due.    Petitioner also instructed Best Ever Dairy to mail both

checks to petitioner.    From August 30, 1990, through December 31,

1992, Best Ever Dairy followed petitioner’s instructions.

       The milk proceeds belonged to petitioner.   When Tadd Hoover

received checks from Best Ever Dairy, he endorsed the checks and

gave them to petitioner.    Sometime after petitioner told Best

Ever Dairy to split the milk sales checks between Harvey Hoover

and Michael Hoover or Tadd Hoover, petitioner advised Michael

that he was reporting all of the milk sales on his tax returns

and paying the taxes due on the milk sales.

       Petitioner’s milk sales to Best Ever Dairy were computed by

Best Ever Dairy in terms of gross sales from which it deducted

certain expenses attributable to petitioner and remitted the net

amount to petitioner.    Petitioner received milk sale proceeds

from Best Ever Dairy as follows:

       Year       Gross Sales      Expenses        Net Sales

       1990      $146,416.57      $8,615.19     $137,801.38
       1991       101,047.40       7,278.94       93,768.46
       1992       117,274.22       8,456.73      108,817.49
                                 - 7 -

The above-stated expenses consisted of hauling, market orders,

NDPRB, CCC, and Cream LIC expenses.6

     Petitioner also sold cattle as part of his farming business.

During the years in issue, Jon Hayes or his father Porter Hayes

(the Hayeses) purchased male calves from petitioner.     The Hayeses

typically paid petitioner $100 to $125 per calf.      When Jon Hayes

purchased cattle from petitioner, he always left the payee’s name

blank.    The checks with which the Hayeses purchased the cattle

were ultimately made payable to petitioner or Michael Hoover in

amounts totaling $3,455 in 1990, $1,375 in 1991, and $375 in

1992.7   The checks from the Hayeses were as follows:

    Year Issued         Check No.        Payee           Amount

         1990              112       Harvey Hoover        $770
         1990              --        Harvey Hoover         550
         1990              106       Harvey Hoover         900
         1990              109       Harvey Hoover         770
         1990              116       Harvey Hoover         250
         1990              121       Harvey Hoover         275
         1991              226       Harvey Hoover         500
         1991              232       Harvey Hoover         375
         1991             2448       Mike Hoover           250
         1991             2473       Michael Hoover        125



     6
       The parties did not explain the expenses listed as NDPRB,
CCC, and Cream LIC.
     7
       Respondent asserts that petitioner received income in 1992
of $1,875 from the sale of calves to the Hayeses. The record
contains only one canceled check from 1992; the Hayeses issued a
$375 check to petitioner in 1992. Respondent relies on a summary
exhibit prepared and used by a revenue agent in the criminal
prosecution of petitioner to argue that petitioner received
$1,875 from the Hayeses in 1992. We find that petitioner
received $375 from the Hayeses in 1992.
                                    - 8 -

          1991                240           Michael Hoover       125
          1992                219           Harvey Hoover        375

     Petitioner also sold dairy cattle through Rochester Sale

Barn in 1990, 1991, and 1992.       Although Rochester Sale Barn

issued checks to either Tadd Hoover or Michael Hoover, petitioner

received the proceeds from the checks.          Petitioner’s gross sales,

expenses, and net sales from Rochester Sale Barn were as follows:

     Year          Gross Sales              Expenses         Net Sales

     1990           $698.60                 $18.75            $679.85
     1991          1,643.15                  36.60           1,606.55
     1992          4,793.80                 116.35           4,677.45

Respondent concedes that these amounts should be given capital

gains treatment.

     From 1987 through 1992, petitioner also sold livestock

through the Stony Pike Livestock Auction (Stony Pike).            Although

Stony Pike issued most of the checks to Tadd Hoover,8 Tadd Hoover

endorsed the checks and then gave them to petitioner.            The gross

income, expenses, and net sales with respect to these livestock

sales were as follows:

         Year      Gross Sales         Expenses         Net Sales

         1990    $13,042.60            $319.88         $12,722.72
         1991     11,588.55             247.80          11,340.75
         1992     11,113.50             238.30          10,875.20




     8
       Of the 20 checks in the record, 17 checks were issued to
Tadd Hoover, 2 checks were issued to Michael Hoover, and 1 check
was issued to petitioner.
                               - 9 -

Respondent concedes that these amounts should be given capital

gains treatment.

     Petitioner’s farming operation also included the planting

and harvesting of corn during the years 1989 through 1992.     On

August 21, 1990, Ag Max, a grain elevator that buys and sells

grain, issued a $17,208.11 check to Tadd Hoover and Michael

Hoover for the purchase of 6,104.42 bushels of petitioner’s corn.

     From 1989 through 1992, petitioner stored corn at, and

bought cattle feed from, Roann Farm Center, Inc. (Roann), a grain

elevator and feed operation in Wabash, Indiana.   Petitioner

maintained his corn inventory held in storage with Roann in the

name of Michael Hoover or Tadd Hoover.   Roann paid petitioner

$7,680 on April 25, 1990, $17,500 on April 15, 1991, and $6,200

on February 4, 1992, for shelled corn.   These payments were made

by checks payable to Michael Hoover in 1990, Tadd Hoover in 1991,

and petitioner in 1992.

     Petitioner’s brother, Fred Hoover, also engaged in farming.

Fred Hoover rented farm land from petitioner during the years in

issue.   Fred Hoover paid rent to petitioner of $10,500 in 1990,

$2,475 in 1991, and $2,475 in 1992.

     Petitioner and Fred Hoover also practiced a bartering system

in which they exchanged goods and services.   Fred Hoover

maintained an account of debts due to and owed by petitioner

during the years in issue.   These records reflect that Fred
                               - 10 -

Hoover paid petitioner for the excess of goods and services

provided by petitioner as follows:

      Year Goods and
     Service Provided          Amount         Date Check Issued

          1990               $5,569.32               2/1/91
          1991                7,598.75              1/22/92
          1992                4,743.32               2/3/93

Interest Income

     In 1990, 1991, and 1992, petitioner received interest income

as follows:

          Source               1990           1991            1992

     Bank One                   $583           --              --
     Fidelity Federal            188           --              --
     First Merchants Bank        139          $814            $512
     Bureau of Public Debt       --         80,468             --
       (U.S. savings bonds)
     Ft. Wayne National          --            --         6,317
       Bank CDs
     Lafayette Life Ins. Co.     --            --            13
     Tucker Land Contract      2,930         2,339        1,942
                             1
       Total                   3,840        83,621        8,784
     1
      The parties have stipulated that petitioner received
interest income of $3,979 in 1990. For purposes of this opinion,
we shall use $3,840 as the amount of petitioner’s 1990 interest
income.
Tax Returns

     Petitioner timely filed Forms 1040, U.S. Individual Income

Tax Return, for the years 1989, 1990, 1991, and 1992.    Joyce

Rouse, a tax return preparer at H&R Block, prepared petitioner’s

1989 and 1990 returns.   Petitioner provided Ms. Rouse with lists

of his total income and expenses, but he did not have supporting
                                - 11 -

documents.   Petitioner did not maintain books and records for his

farm business.

     Ms. Rouse prepared petitioner’s 1991 tax return that

reported a tax due of $2,254.    Petitioner did not file that

return; instead, he filed a return showing that he was owed a

refund of $405.

     On his income tax returns, petitioner reported gross income

from farming of $35,551 in 1989, $21,953 in 1990, $14,069 in

1991, and $20,700 in 1992.    On his Schedules F, Farm Income and

Expenses, petitioner reported his gross income from farming as

follows:

  Year                       Source                       Amount

  1989        Sale of livestock, produce, grains,        $14,636
                and other products raised
              Agricultural program payments               20,596
              Other income, including Federal and            319
                State gasoline or fuel tax credit
                or refund

  1990        Sale of livestock, produce, grains,         12,426
                and other products raised
              Agricultural program payments                 5,585
              Crop insurance proceeds and certain           3,708
                disaster payments
              Other income, including Federal and             234
                State gasoline or fuel tax credit
                or refund

  1991        Sale of livestock, produce, grains,         13,788
                and other products raised
              Other income, including Federal and             281
                State gasoline or fuel tax credit
                or refund

  1992        Sale of livestock, produce, grains,         19,865
                and other products raised
                             - 12 -

             Other income, including Federal and                405
               State gasoline or fuel tax credit
               or refund

     On his income tax returns for 1990, 1991, and 1992,

petitioner claimed expenses on Schedules F as follows:

                           1990          1991            1992

 Fertilizers & lime       $6,124        $7,980        $7,260
 Gasoline, fuel & oil      2,640         2,875         3,251
 Insurance                   859         1,025           825
 Repairs & maintenance       937         4,545         1,987
 Seeds & plants            1,661         1,235         1,359
 Supplies                    879         1,462         1,162
 Custom hire               2,565         2,990         2,540
   (Machine Work)
 Other expenses              954           196           104
 Depreciation              7,871         5,622         4,016
 Mortgage interest        11,575        10,670           --
 Utilities                  --            --           4,470
 Taxes                     1,348         1,226           891
   Total                  37,413        39,826        27,865

Petitioner reported net farming losses of $7,600 in 1989, $15,460

in 1990, $25,757 in 1991, and $7,595 in 1992.    After concessions,

respondent agrees that petitioner incurred allowable farm

expenses in 1990, 1991, and 1992 as follows:9

                           1990          1991             1992

 Feed                     $32,947      $25,123         $18,403
 Fertilizers & lime           188        1,850           4,508
 Gasoline, fuel & oil       2,544          713           2,060
 Insurance                    504          504             504
 Repairs & maintenance        762          368             148
 Straw                        240         --             3,208
 Veterinary                   207         --              --
 Seeds & plants               540         --             1,062


     9
       These allowable expenses are in addition to the Best Ever
Dairy, Rochester Sale Barn, and Stony Pike expenses netted
against income.
                                - 13 -

 Supplies                          31         616            179
 Milk expense                    391         --             --
 Custom hire                   2,188        1,068          3,476
 Depreciation                 20,910       14,293        11,986
 Rent                           --          8,260          9,456
 Taxes                         1,929        1,857            398
                                                         1
   Total                      63,381       54,652          55,388
     1
      The parties have stipulated that respondent determined
that petitioner incurred allowable expenses totaling $55,389 in
1992. The $1 overstatement is due to rounding. For purposes of
this opinion, we shall use $55,389 as the amount of petitioner’s
1992 allowable expenses.

Capital Loss

     On his 1991 Federal income tax return, petitioner claimed a

$31,000 loss.   On Form 4797, Sales of Business Property,

petitioner reported that the farm was sold for $75,000 on January

20, 1991.   Form 4797 also shows that petitioner’s basis in the

farm property was $106,000.     Respondent disallowed the claimed

loss and increased petitioner’s taxable income by $31,000.10

Investigation

     Petitioner did not submit any books or records to

respondent’s agents during the course of the examination of his

income tax returns.   During the examination, respondent requested

the production of certain documents regarding an investigation of

petitioner from Ms. Shirley Harrell, an H&R Block employee.

Petitioner contacted Ms. Harrell after she received the request




     10
       Respondent’s notice of deficiency shows this item as an
increase in income with no explanation.
                               - 14 -

and asked that she not produce any of his returns from the 1998

tax year and earlier because the returns could cause him problems

because of a divorce.

Criminal Proceedings

     Petitioner was indicted for willfully filing false returns

for 1990, 1991, and 1992 that understated his true income.      On

March 19, 1998, a jury found petitioner guilty of three counts of

filing false Federal income tax returns for 1990, 1991, and

1992.11   On July 24, 1998, the U.S. District Court filed its

judgment in the criminal case regarding petitioner (judgment).

The judgment included petitioner’s terms of imprisonment,

supervised release, standard conditions of supervision, and

restitution.   In the restitution portion of the judgment, the

District Court ordered petitioner to

     take, by August 7, 1998, all steps necessary to turn
     over to the United States government full title to 304
     United States Savings Bonds with face values of
     $1,000.00 each in the names of Michael and Tadd Hoover.
     The United States Attorney’s Office shall ensure this
     turnover, and then shall itself turn the bonds over to
     the United States District Court Clerk * * * for
     application to the following: first, to the
     expenditures on Mr. Hoover’s behalf as ultimately
     computed under the Criminal Justice Act (for attorney
     and accountant services, including appellate attorney
     fees), then to the costs of prosecution in the sum of
     $3,191.77, then to Purdue University, Division of




     11
       Petitioner was also charged with and convicted on one
count of making false statements on a student loan application.
                              - 15 -

     Financial Aid * * * in the sum of $13,543.00 and
     finally, the remainder shall be distributed to the
     Internal Revenue Service for application to Mr.
     Hoover’s tax liability.

Petitioner failed to turn over the 304 U.S. saving bonds to the

U.S. Attorney’s Office on or before August 7, 1998.

     The U.S. attorney filed a motion for an order to show cause

why petitioner should not be held in contempt of the District

Court’s restitution order by failing to turn over the 304 U.S.

Saving Bonds.   On September 18, 1998, the District Court

conducted a trial on the Government’s motion.    The District Court

held that petitioner was in contempt of the court’s March 19,

1998, order “when he transferred--using that in its ordinary

English sense--150 United States savings bonds with a face value

of $1,000 to Michael Hoover after having been expressly ordered

in this courtroom on March 19, 1998, not to do so.”    The District

Court then ordered that petitioner “is committed to the Bureau of

Prisons for a term of six months, to be served consecutively to

the sentence heretofore imposed in this cause.”

     On September 22, 1998, Michael Hoover turned over 165 U.S.

savings bonds to the U.S. Attorney’s Office.    On September 23,

1998, Michael Hoover turned over 52 U.S. savings bonds to the

U.S. Attorney’s Office.   Also on September 23, 1998, Michael

Hoover informed the U.S. attorney that he had cashed 12 of the

U.S. savings bonds; however, he did not turn over the proceeds of

these savings bonds to the U.S. attorney.   On January 11, 1999,
                                - 16 -

Michael Hoover turned over 60 U.S. savings bonds to the U.S.

Attorney’s Office.    The U.S. attorney turned over 277 U.S.

savings bonds to the District Court clerk’s office for

liquidation.   The clerk of the District Court liquidated the U.S.

savings bonds and received proceeds of $236,925.60.     On June 30,

1999, respondent served a notice of jeopardy levy on the clerk of

the District Court for the proceeds of the savings bonds minus

the restitution claims.

     Petitioner appealed his conviction, sentence, and

restitution order to the Court of Appeals for the Seventh

Circuit.   The Court of Appeals affirmed petitioner’s conviction

but modified the U.S. District Court’s restitution order, finding

that the District Court exceeded its authority when it ordered

petitioner to surrender savings bonds to pay his tax liability.

United States v. Hoover, 175 F.3d 564 (7th Cir. 1999).

Petitioner also appealed his contempt order to the Court of

Appeals for the Seventh Circuit, which affirmed the District

Court’s contempt order.     United States v. Hoover, 240 F.3d 593

(7th Cir. 2001).     Then petitioner sought a reversal of his

conviction and sentences for filing false Federal income tax

returns and making false statements on a student loan application

on the grounds that he received ineffective assistance of

counsel.   The Court of Appeals affirmed petitioner’s conviction.

Hoover v. United States, 6 Fed. Appx. 414 (7th Cir. 2001).
                              - 17 -

     On September 20, 1999, petitioner’s attorney in his criminal

case filed a letter with the clerk of the District Court that

stated that the Court of Appeals for the Seventh Circuit had

modified petitioner’s restitution order.   The District Court

modified its judgment order “by deleting the requirement that

* * * [petitioner] make restitution to the Internal Revenue

Service and the requirement that U.S. Savings Bonds be held for

that purpose.”

     The District Court ordered disbursement of the proceeds held

by the clerk of the District Court from the liquidation of the

U.S. savings bonds as follows:   (1) $6,754.65 for attorney's

fees, (2) $8,200 for accounting services, (3) $1,150 for expert

testimony fees, and (4) $3,191.77 for the costs of prosecution.

The District Court ordered the clerk to release the remaining

funds.   After payment of restitution to all claimants except

respondent, the remaining proceeds of $209,916.51 were paid to

respondent on February 29, 2000, pursuant to the notice of

jeopardy levy.

     On February 28, 2001, Michael Hoover and Tadd Hoover filed a

letter with the District Court requesting it to order the U.S.

Attorney’s Office to deliver to them the U.S. savings bonds that

were surrendered to the court clerk.   On April 16, 2001, the U.S.
                              - 18 -

District Court entered an order declining to take any action in

response to the letter submitted by Michael Hoover and Tadd

Hoover.

Collection Actions

     On June 28, 1999, respondent made a jeopardy assessment of

petitioner’s deficiencies, and penalties for 1989, 1990, 1991,

and 1992.   On that same date, respondent sent to petitioner a

Notice of Jeopardy Levy and Right of Appeal, which stated:

     I am notifying you that I have found that you have
     consistently attempted to conceal your reportable
     income and assets through the use of nominees, thereby
     putting our collection of the income tax you owe for
     the tax period(s) in jeopardy. Therefore, * * * I have
     approved the issuance of a levy to collect the amount
     your [sic] owe, although we have not provided you a
     notice of intent to levy and/or notice of your right to
     a hearing, generally required by Sections 6330 and 6331
     * * *

Respondent’s notice of jeopardy levy and right to appeal informed

petitioner that he was entitled to request (1) an administrative

review under section 7429 and (2) a collection due process

hearing pursuant to section 6330.

     Two days later, respondent sent a letter to petitioner

informing him that respondent had made a jeopardy assessment

pursuant to section 6861 regarding petitioner’s tax years 1989,

1990, 1991, and 1992.   The letter notified petitioner that

respondent has “found you [petitioner] consistently attempted to

conceal your reportable income and assets through the use of

nominees, thereby tending to prejudice or render ineffectual
                               - 19 -

collection of income tax for the periods of 1989 through 1992.”

The letter also advised petitioner of his appeal rights pursuant

to section 7429.

     On June 30, 1999, respondent filed a notice of Federal tax

lien in the Wabash, Indiana County Recorder’s Office regarding

jeopardy assessments of income taxes, interest, and penalties for

1989, 1990, 1991, and 1992.   On July 5, 1999, respondent sent to

petitioner a Letter 3172, Notice of Federal Tax Lien Filing and

Right to a Hearing Under IRC Section 6320, regarding petitioner’s

1989, 1990, 1991, and 1992 tax years.

     Petitioner executed and mailed to respondent a Form 12153,

Request for a Collection Due Process Hearing, dated July 23,

1999.   In that Request for a Collection Due Process Hearing,

petitioner appealed both the notice of Federal tax lien and the

notice of levy.    On September 13, 1999, the Appeals officer sent

a letter to petitioner establishing a conference date of October

20, 1999.   By letter dated September 22, 1999, petitioner

requested that the conference be moved to Cleveland, Ohio, where

he was incarcerated.

     Sometime between December 8, 1999, and January 11, 2000,

respondent’s Appeals officer and petitioner conducted a telephone

conference regarding petitioner’s request for a hearing.     During

the telephone conference, petitioner did not question the amounts

of gross income respondent determined for 1990, 1991, and 1992.
                              - 20 -

Instead, petitioner asserted that his expenses were too low and

that he was taxed using the incorrect rate of tax.   Petitioner

also informed respondent’s Appeals officer that he could not pay

the income taxes, interest, and penalties assessed for 1990,

1991, and 1992.   During the telephone discussions, petitioner and

the Appeals officer did not discuss collection alternatives.

      By letter dated January 11, 2000, the Appeals officer

confirmed that a telephone conference had occurred, and the

Appeals officer canceled the proposed face-to-face meeting.    The

letter also contained respondent’s proposed findings and invited

petitioner to contact the Appeals officer to arrange further

telephone discussions if he had any questions.   Petitioner did

not contact the Appeals officer after receiving the January 11,

2000, letter.   On March 23, 2000, respondent issued a Notice of

Determination Concerning Collection Action(s) Under Section 6320

and/or 6330 to petitioner regarding his unpaid income taxes for

1989, 1990, 1991, and 1992.

                              OPINION

I.   Burden of Proof

      Generally, the Commissioner’s determinations in a notice of

deficiency are presumed to be correct, and the taxpayer bears the

burden of proving that the Commissioner’s determinations are

erroneous.   Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115

(1933).
                               - 21 -

       Section 7491(a) shifts the burden of proof to the

Commissioner when the taxpayer has satisfied certain

requirements.    Section 7491 is effective with respect to court

proceedings arising in connection with examinations commencing

after July 22, 1998.    Internal Revenue Service Restructuring and

Reform Act of 1998, Pub. L. 105-206, sec. 3001(c)(1), 112 Stat.

727.    Respondent concedes that the examination in these cases

began after July 22, 1998.

       Specifically, section 7491(a)(1) provides:

       If, in any court proceeding, a taxpayer introduces
       credible evidence with respect to any factual issue
       relevant to ascertaining the liability of the taxpayer
       for any tax imposed by subtitle A or B, the Secretary
       shall have the burden of proof with respect to such
       issue.

Section 7491(a)(2) further provides that the burden of proof

shifts to the Commissioner only when the taxpayer has:     (1)

“complied with the requirements under this title to substantiate

any item”, and (2) “maintained all records required under this

title and has cooperated with reasonable requests by the

Secretary for witnesses, information, documents, meetings, and

interviews”.

       Petitioner failed to maintain books and records relating to

his farming business.    Furthermore, the parties have stipulated

that petitioner did not submit any books or records to

respondent’s agents during the examination of his 1990, 1991, and

1992 income tax returns.    Because petitioner failed to satisfy
                                - 22 -

the requirements of section 7491(a)(2), we find that the burden

of proof does not shift to respondent pursuant to section

7491(a)(1).   However, as explained infra, respondent has the

burden of proving fraud for purposes of the section 6663 penalty

and the section 6501(c) exception to the 3-year statute of

limitations for assessment.12

II.   1989--Statute of Limitations

      Petitioner argues that respondent assessed the 1989

deficiency after the period of limitations had expired.

Specifically, with respect to the 1989 taxable year, petitioner

argues on brief that “The assessments for 1989 were not within 3

yrs next to the year of investigation.   The Internal Revenue

Service assessment date were [sic] June 28, 1999”.

      Respondent argues that “Petitioner did not dispute the

deficiency for tax year 1989 in his petition”.   We disagree.

Petitioner was not represented by counsel.   His petitions are not

models of clarity.   However, it seems to us that the best reading

is that he was contesting respondent’s deficiency determinations

for all years in the notice of deficiency.   The petition in

docket No. 15557-99 was filed using a preprinted Government form.

Paragraph 3 of the form had space for listing only 3 years of

disputed deficiencies.   In paragraph 3 of his petition filed in


      12
        The Commissioner bears the burden of proving fraud by
clear and convincing evidence. Secs. 7454(a), 7491(c); Rule
142(b).
                              - 23 -

docket No. 15557-99, petitioner lists the years 1990, 1991, and

1992 and the amounts in dispute for those years.    However, in

paragraph 4 of the form, which is entitled “Set forth those

adjustments, i.e. changes, in the NOTICE OF DEFICIENCY with which

you disagree and why you disagree”, petitioner states that “The

Tax Year December 31, 1989 doesn’t count.    $46,052.00 Tax

34,539.00 Addition to”.   In docket No. 4590-00L, petitioner

claims in paragraph 4 of the same type of preprinted form

petition that “the Tax Years December 31, 1989 and December 31,

1990 is [sic] past the Statute of limitations.”

     Petitioner has consistently argued that the assessment of

the 1989 deficiency was barred by the statute of limitations.     In

his pretrial memorandum, petitioner stated:    “It is not to be

over-looked that the IRS also added alleged tax deficiency(s) for

Tax Year 1989, for approximately $46,000.00; being even further

beyond the statute of limitations.”    At trial, petitioner

testified:   “And they even had 1989 as part of the deficiency and

that was past the limit because you can only go back three years

from the time that the investigation started.    So 1989 would have

been past the statute of limitations.”    Finally, in his answering

brief, petitioner argued that “The assessments for 1989 were not

within 3 yrs next to the year of investigation.    The Internal

Revenue Service assessment date * * * [was] June 28, 1999.”    We
                              - 24 -

conclude that petitioner has placed the deficiency for the year

1989 in dispute by raising the statute of limitations.

     Section 6501(a) generally provides that “the amount of any

tax imposed by this title shall be assessed within 3 years after

the return was filed”.   The only apparent exception that might

apply here is that contained in section 6501(c).13    Section

6501(c)(1) provides an exception to the general 3-year period of

limitations:   “In the case of a false or fraudulent return with

the intent to evade tax, the tax may be assessed, or a proceeding

in court for collection of such tax may be begun without

assessment, at any time.”   Respondent bears the burden of proving

by clear and convincing evidence that petitioner filed a false or

fraudulent tax return.   Sec. 7454(a); Rule 142(b).   Respondent

makes no argument that he has proven fraud or that any other

exception applies with respect to petitioner’s 1989 liability.

Respondent failed to offer evidence relating to petitioner’s 1989

tax liability.   The canceled checks, invoices, receipts, and

testimony from the criminal proceeding that were admitted into

evidence primarily relate to petitioner’s 1990, 1991, and 1992

tax years.   Since respondent failed to offer evidence of fraud


     13
       Sec. 6501(e) extends the period of limitations to 6 years
when the taxpayer omits amounts properly includable in gross
income and the omitted amounts exceed 25 percent of the reported
gross income. Sec. 6501(e) does not apply here because
respondent issued the notice of deficiency on Aug. 20, 1999,
which is more than 6 years after petitioner timely filed his 1989
income tax return.
                               - 25 -

regarding petitioner’s 1989 tax year, we hold that assessment of

any deficiency regarding 1989 is barred by the 3-year period of

limitations contained in section 6501(a).

III.    1990, 1991, and 1992

       Respondent argues that petitioner failed to report farm

income of $173,663.38 in 1990, $121,595.51 in 1991, and

$119,393.46 in 1992.14   Generally, petitioner argues that

respondent committed injustice against him in this case.15

Petitioner asserts that he did not receive the income respondent

determined, and that he incurred farm expenses that exceeded the

amounts respondent allowed.    Finally, petitioner contends that

his assets were sold in the divorce proceeding and that he lost

$156,000 from the sale of his assets.

       A.   Unreported Gross Income

       Section 61(a) provides that “gross income means all income

from whatever source derived,” and specifically includes “Gross

income derived from business”.    Section 6001 requires that

taxpayers maintain books and records sufficient to establish



       14
       These amounts include both ordinary farm income and
capital gains income. Respondent asserts that petitioner’s
capital losses will offset the capital gains income, and the
capital gains income will not result in additional tax.
       15
       Petitioner asserts that he did not receive the income
determined by respondent, and warns: “I have been taxed on
Income I didn’t receive and will never receive. If something is
not done I will go public with this including congress, senators,
Television, Newspapers.”
                               - 26 -

their gross income.   When a taxpayer fails to keep the required

books and records, section 446 authorizes the Commissioner to

“reconstruct income in accordance with a method which clearly

reflects the full amount of income received.”    Petzoldt v.

Commissioner, 92 T.C. 661, 687 (1989); accord DiLeo v.

Commissioner, 96 T.C. 858, 867 (1991), affd. 959 F.2d 16 (2d Cir.

1992); Parks v. Commissioner, 94 T.C. 654, 658 (1990).

     Using the specific items method, respondent reconstructed

petitioner’s gross income for 1990, 1991, and 1992 from bank

records and third-party payor records.    Respondent’s method

accurately reflects petitioner’s gross income because the method

calculated petitioner’s income using proceeds that he received

from his farming business.    Even though some of the canceled

checks and invoices list Tadd Hoover or Michael Hoover as the

payee, we agree with the Court of Appeals for the Seventh Circuit

that these proceeds were actually petitioner’s gross income16 and

that petitioner “instructed creditors to write checks made out to

his sons, but kept all the proceeds for himself.”    United States

v. Hoover, 175 F.3d at 567.




     16
       Tadd Hoover testified that the checks that he received
from the family business were not his. Tadd Hoover further
testified that he “would sign the back of * * * [the checks] and
let dad do whatever he wanted with them.” The parties stipulated
that the testimony of Tadd Hoover from petitioner’s criminal
proceeding is incorporated as though given during the course of
the trial of the U.S. Tax Court cases.
                               - 27 -

     In his farming business, petitioner received gross receipts

from the sale of milk, livestock, corn, and shelled corn.     The

evidence, including copies of canceled checks, settlement sheets,

receipts, invoices, and the testimony from petitioner’s criminal

proceeding, clearly and convincingly establishes that petitioner

failed to report gross income from his farming business.

     We adjust respondent’s calculation of petitioner’s total

unreported farming income with respect to the bartering income he

received from Fred Hoover.   Respondent determined that petitioner

received bartering income of $5,569.32 in 1990, $7,598.75 in

1991, and $4,743.32 in 1992.   The records of Fred Hoover reflect

that in 1991 he issued a $5,569 check to petitioner for the

excess of goods and services attributable to 1990.     Because

petitioner received the check for $5,569 in 1991, petitioner

failed to report this income in 1991, not in 1990 as respondent

argues.   See secs. 446(c), 451(a).     These records also show that

in 1992 Fred Hoover issued a $7,598.75 check to petitioner for

the excess of goods and services attributable to 1991.

Petitioner failed to report this $7,598.75 in 1992, the year in

which he received this payment.   In 1993, Fred Hoover issued a

$4,743.32 check to petitioner for the excess of goods and

services attributable to 1992.    Because petitioner received the

check relating to the 1992 bartering income in the 1993 taxable

year, we find that the bartering income of $4,743.32 is not
                                - 28 -

included in his unreported income in 1992.     Fred Hoover did not

issue any of the checks in 1990; therefore, petitioner did not

receive any bartering income in 1990.

     We hold that petitioner received and failed to report total

farming income of $168,094.06 in 1990, $119,566.08 in 1991, and

$120,748.89 in 1992.17    The farming income that petitioner failed

to report is itemized as follows:

      Source                  1990          1991          1992

 Best Ever Dairy           $137,801.38   $93,768.46    $108,817.49
 Jon Hayes                    3,455.00     1,375.00         375.00
 Ag Max                      17,208.11        --             --
 Roann                        7,680.00    17,500.00       6,200.00
 Rochester Sale Barn            679.85     1,606.55       4,677.45
 Stony Pike                  12,722.72    11,340.75      10,875.20
 Fred Hoover--                  --         5,569.32       7,598.75
   bartering
 Fred Hoover--rent           10,500.00      2,475.00      2,475.00
 Total farm income          190,047.06    133,635.08    141,018.89
 Less reported               21,953.00     14,069.00     20,270.00
   ordinary farm income
   Total unreported         168,094.06    119,566.08    120,748.89
     farm income

     B.   Interest Income

     On brief, petitioner argues that he did not receive interest

income.   The stipulation of facts and the attached exhibits show

that petitioner received interest income of $3,840 in 1990,18


     17
       Respondent concedes that the following amounts of the
unreported farm income from the sale of breeding stock to the
Rochester Sale Barn and Stony Pike should be given capital gains
treatment: $13,402.57 in 1990, $12,947.30 in 1991, and
$15,552.65 in 1992.
     18
       The stipulation of facts states that petitioner received
interest income totaling $3,979 in 1990. This appears to be a
mathematical error.
                                 - 29 -

$83,621 in 1991, and $8,784 in 1992.       Petitioner reported

interest income on his tax returns of $771 in 1990 and $80,468 in

1991.     Petitioner did not report any interest income in 1992.

Accordingly, we sustain respondent’s determinations that

petitioner failed to report interest income of $3,069 in 1990,

$3,153 in 1991, and $8,784 in 1992.

     C.      Business Expenses

        Section 162(a) allows as a deduction “all the ordinary and

necessary expenses paid or incurred during the taxable year in

carrying on any trade or business”.       Taxpayers are required to

maintain records that substantiate the amounts of claimed

deductions.     Sec. 6001; sec. 1.6001-1(a), Income Tax Regs.

Taxpayers bear the burden of proving that they are entitled to

any claimed deductions.     Rule 142(a); INDOPCO, Inc. v.

Commissioner, 503 U.S. 79, 84 (1992).

        Respondent now agrees that petitioner is entitled to deduct

farm expenses of $63,381 in 1990, $54,652 in 1991, and $55,389 in

1992, which are in excess of the amounts petitioner claimed on

his returns.     Despite petitioner’s claim that he “had farm

expenses greater than allowed by respondent”, petitioner failed

to offer any documents, records, or other evidence to support his

assertion.     We hold that petitioner is entitled to deduct

business expenses in 1990, 1991, and 1992 only as determined by

respondent.
                               - 30 -

     D.   Capital Loss

     Petitioner claimed a capital loss of $31,000 on his 1991 tax

return.   On brief, petitioner now asserts that he is entitled to

a capital loss of $48,000, which resulted from the sale of his

farm.

     The taxpayer bears the burden of proving the loss claimed.

Rule 142(a).   “Where the taxpayer does not prove basis this Court

has consistently held that his loss cannot be computed.”    Millsap

v. Commissioner, 46 T.C. 751, 760 (1966), affd. 387 F.2d 420 (8th

Cir. 1968).

     Petitioner offered only his tax returns and a letter

prepared by his certified public accountant as evidence of the

claimed capital loss.19   “The Commissioner need not accept as

complete, correct, and accurate, the returns filed or the sworn

statement of the taxpayer that his returns completely and

correctly disclose his tax liability.”   Halle v. Commissioner, 7

T.C. 245, 250 (1946), affd. 175 F.2d 500 (2d Cir. 1949).    The

documents fail to establish the basis in the farm property or the

amount that petitioner realized from the sale of that property.

Therefore, we sustain respondent’s determination that petitioner

is not entitled to a capital loss of $31,000.




     19
       Petitioner’s certified public accountant did not support
his letter and computation with documentation.
                              - 31 -

IV.   Fraud Penalty--Section 6663

      Section 6663(a) provides that “If any part of any

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 75

percent of the portion of the underpayment which is attributable

to fraud.”   The Commissioner bears the burden of proving fraud by

clear and convincing evidence.      Sec. 7454(a); Rule 142(b).   The

Commissioner cannot satisfy his burden of proving fraud by

relying upon the taxpayer’s failure to establish error in the

determination of deficiencies.      Parks v. Commissioner, 94 T.C. at

660-661.   To prove fraud, the Commissioner must establish that

(1) an underpayment exists and (2) some portion of the

underpayment is attributable to fraud.      DiLeo v. Commissioner, 96

T.C. at 873.

      As stated supra, we find that respondent has clearly and

convincingly proven that petitioner received and failed to report

income from his farming business in 1990, 1991, and 1992.        If the

Commissioner proves that any portion of an underpayment of tax is

attributable to fraud, the entire underpayment shall be treated

as attributable to fraud, except that when the taxpayer

establishes by a preponderance of the evidence that any portion

of the underpayment was not attributable to fraud, the fraud
                               - 32 -

penalty shall not apply to that portion of the underpayment.

Sec. 6663(b).

       “Fraud is defined as an intentional wrongdoing designed to

evade tax believed to be owing.”    DiLeo v. Commissioner, supra at

889 (citing Profl. Servs. v. Commissioner, 79 T.C. 888, 930

(1982)).    To prove fraud, the Commissioner “must show that * * *

[the taxpayer] intended to evade taxes known to be owing by

conduct intended to conceal, mislead, or otherwise prevent the

collection of taxes.”    Petzoldt v. Commissioner, 92 T.C. at 699

(citing Stoltzfus v. United States, 398 F.2d 1002, 1004 (3d Cir.

1968)).    Because direct evidence of a taxpayer’s intent is rarely

available, the Commissioner may prove fraudulent intent using

circumstantial evidence.    Spies v. United States, 317 U.S. 492,

499 (1943); DiLeo v. Commissioner, supra at 874; Parks v.

Commissioner, supra at 664; Petzoldt v. Commissioner, supra.     We

consider the taxpayer’s entire course of conduct in determining

fraud, and we may draw reasonable inferences from the facts.

Parks v. Commissioner, supra at 664; Otsuki v. Commissioner, 53

T.C. 96, 106 (1969).

       The indicia or badges of fraud serve as circumstantial

evidence of fraudulent intent.     DiLeo v. Commissioner, supra at

875.    These badges of fraud include:   (1) A pattern of consistent

underreporting of income; (2) failure to cooperate with tax
                              - 33 -

authorities; (3) inadequate books and records; (4) concealing

assets; (5) filing false documents; and (6) implausible or

inconsistent explanations of behavior.    Spies v. United States,

supra at 499; Bradford v. Commissioner, 796 F.2d 303, 307-308

(9th Cir. 1986), affg. T.C. Memo. 1984-601; DiLeo v.

Commissioner, supra at 875.   While no single indicium is

necessary or sufficient to find fraud, the existence of several

of these factors is persuasive circumstantial evidence of

fraudulent intent.   Petzoldt v. Commissioner, supra at 700.

     Petitioner consistently understated his income by

substantial amounts for the years 1990, 1991, and 1992.

     Petitioner failed to cooperate with tax authorities.

Petitioner’s effort to prevent respondent from obtaining

information from the H&R Block employee shows that he attempted

to impede respondent’s investigation and indicates that

petitioner intended to evade taxes.    See Truesdell v.

Commissioner, 89 T.C. 1280, 1303 (1987) (finding that the

taxpayer’s “interference with * * * [the Commissioner’s]

investigation is also indicative of his intent to conceal the

diverted income and evade tax”).   Also, as discussed supra,

petitioner did not submit any books or records to respondent’s

agent during the course of the examination of his 1990, 1991, and

1992 income tax returns.
                              - 34 -

     Petitioner maintained inadequate business records.    As

stated in the criminal proceeding, petitioner “did not keep many

business records; according to his sons, he merely kept track of

‘some things’ by handwritten notes on scraps of paper.”     United

States v. Hoover, 175 F.3d at 566.     We find that petitioner’s

failure to maintain adequate business records supports a finding

of fraud.

     Petitioner devised a scheme to conceal his income and divert

it to his children with the intent of avoiding income taxes.

Petitioner instructed his customers to issue checks payable to

his children.   Petitioner attempted to disguise his farming

income by diverting to his children farming receipts that were

owed to petitioner.   We find that this scheme of concealing his

assets provides further evidence that petitioner attempted to

avoid income taxes.

     Although a criminal conviction under section 7206 is not

dispositive, it provides probative evidence that the taxpayer

intended to evade taxes.   Wright v. Commissioner, 84 T.C. 636,

643-644 (1985).   Petitioner was convicted of filing false Federal

income tax returns in violation of section 7206 in 1990, 1991,

and 1992.   United States v. Hoover, 175 F.3d at 567.    We also

note that petitioner was convicted of making false statements on

a student loan application.
                               - 35 -

       Petitioner consistently understated income in 1990, 1991,

and 1992, was convicted of filing false Federal income tax

returns, made a false statement on a student loan application,

interfered with respondent’s investigation, failed to maintain

books and records, and devised a scheme to conceal his income.

We hold that respondent has proven by clear and convincing

evidence that petitioner understated his income in 1990, 1991,

and 1992 with the fraudulent intent to evade taxes.

V.    1990, 1991, and 1992--Statute of Limitations

       Section 6501(c)(1) provides an exception to the general 3-

year period of limitations.    “In the case of a false or

fraudulent return with the intent to evade tax, the tax may be

assessed, or a proceeding in court for collection of such tax may

be begun without assessment, at any time.”    Sec. 6501(c)(1).

Because we have found that petitioner filed fraudulent returns

for 1990, 1991, and 1992, the statute of limitations does not bar

the assessment of tax for these years.

VI.    Collection Proceeding

       Petitioner argues that respondent’s Appeals officer abused

his discretion in sustaining the filing of a Federal tax lien and

in issuing a notice of jeopardy levy.    Since we have found that

the assessment of a deficiency for 1989 is barred by the statute

of limitations, there is no deficiency to collect for 1989.
                               - 36 -

     We sustain respondent’s collection actions regarding 1990,

1991, and 1992.   When the Commissioner determines that a taxpayer

has a deficiency in tax, he is authorized to send a notice of

that deficiency to the taxpayer.   Sec. 6212.   Section 6213(a)

generally restricts when the Commissioner may assess a

deficiency, make a levy determination, and begin or prosecute a

collection action in a court proceeding.    The Commissioner is

generally prohibited from taking these actions until:      (1) The

notice of deficiency has been mailed to the taxpayer; (2) the 90-

day period in which the taxpayer may petition the Tax Court has

expired; and (3) if a petition has been filed with the Tax Court,

the Tax Court’s decision becomes final.    Sec. 6213(a).

     Section 6861 provides an exception to the restrictions on

assessment and collection of deficiencies imposed by section

6213(a).   Section 6861(a) provides that the Commissioner may

immediately assess the deficiency when he believes that the

assessment or collection of a deficiency will be jeopardized by

delay.   “A jeopardy assessment may be made before or after the

mailing of the notice of deficiency provided by section 6212.”

Sec. 301.6861-1(a), Proced. & Admin. Regs.    The Commissioner may

make a jeopardy assessment or collection when the taxpayer is or

appears to be:    (1) Planning to depart from the United States, or

conceal himself or herself; (2) planning to place his property

beyond the reach of Commissioner by concealing it, by dissipating
                              - 37 -

it, or by transferring it to other persons; or (3) financially

imperiled.   Id.; sec. 1.6851-1(a)(1), Income Tax Regs.

     Section 6330 provides taxpayers with notice and an

opportunity for a hearing before the Commissioner may levy on any

property or property right.   Specifically, section 6330(a)(1)

provides:

     No levy may be made on any property or right to
     property of any person unless the Secretary has
     notified such person in writing of their right to a
     hearing under this section before such a levy is made.
     Such notice shall be required only once for the taxable
     period to which the unpaid tax * * * relates.

Section 6330(a)(2) requires the Commissioner to issue a notice

“not less than 30 days before the day of the first levy with

respect to the amount of the unpaid tax for the taxable period.”

     Section 6330 does not apply if the Commissioner makes a

finding, pursuant to the last sentence of section 6331(a), that

the collection of tax is in jeopardy.   Sec. 6330(f).   The last

sentence of section 6331(a) provides:

     If the Secretary makes a finding that the collection of
     such tax is in jeopardy, notice and demand for
     immediate payment of such tax may be made by the
     Secretary and, upon failure or refusal to pay such tax,
     collection thereof by levy shall be lawful without
     regard to the 10-day period provided in this section.

In the context of jeopardy collection, the Commissioner must

provide the taxpayer with a section 6330 hearing “within a

reasonable period of time after the levy.”   Sec. 6330(f).   We

have jurisdiction under section 6330(d) to review respondent’s
                                - 38 -

determination under section 6330(f) that use of a jeopardy levy

was appropriate.     Dorn v. Commissioner, 119 T.C. 356, 359 (2002).

     Petitioner argues that the Court of Appeals for the Seventh

Circuit held that respondent may not levy on his U.S. savings

bonds.   We disagree.    In United States v. Hoover, 175 F.3d at

569, the court found that the U.S. District Court exceeded its

authority by ordering petitioner to surrender U.S. savings bonds

to pay his tax liability because “the Victim and Witness

Protection Act * * * does not authorize restitution for Title 26

tax offenses.”     The Court of Appeals did not address whether

respondent could make a jeopardy assessment and levy pursuant to

sections 6330(f) and 6331(a); the court only addressed the U.S.

District Court’s authority under the Victim and Witness

Protection Act.

     Petitioner argues that respondent abused his discretion in

determining that the collection of petitioner’s deficiencies,

interest, and penalties was in jeopardy.     Again, we disagree with

petitioner.   Section 301.6861-1(a), Proced. & Admin. Regs., and

section 1.6851-1(a)(1)(ii), Income Tax Regs., specifically

provide that collection is in jeopardy when a taxpayer attempts

to place assets beyond the Commissioner’s reach by transferring

the assets to another person.    In petitioner’s criminal

proceeding, the U.S. District Court ordered petitioner to take

all steps necessary to turn over to the United States 304 U.S.
                               - 39 -

savings bonds with face values of $1,000 each.    Petitioner failed

to comply with the District Court’s order and transferred 150 of

those bonds to his son Michael Hoover.    Because petitioner had

fraudulently attempted to evade his tax liability and had

previously attempted to transfer his assets to his son in an

attempt to elude a court order, we hold that respondent did not

abuse his discretion when he concluded that the collection of

taxes, interest, and penalties petitioner owed was in jeopardy.

VII.   Conclusion

       The assessment of the determined deficiency for 1989 is

barred by the 3-year statute of limitations.    Petitioner

fraudulently understated his taxable income on his returns for

1990, 1991, and 1992 and is liable for fraud penalties pursuant

to section 6663.    Section 6501(c), the fraud exception to the

normal 3-year statute of limitations, applies so that the

assessments for 1990, 1991, and 1992 are not barred by the

statute of limitations.    The determination to uphold the jeopardy

levy and the notice of Federal tax lien for the 1990, 1991, and

1992 tax liabilities was not an abuse of discretion.


                                Decision will be entered under Rule

                                155 in docket No. 15557-99, and an

                                appropriate decision will be

                                entered in docket No. 4590-00L.
