                        T.C. Memo. 2004-142



                      UNITED STATES TAX COURT



                   ROY J. CHASE, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 17313-02.             Filed June 17, 2004.



     Roy J. Chase, pro se.

     Willie Fortenberry, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     COHEN, Judge:   Respondent determined deficiencies, additions

to tax, and penalties with respect to petitioner’s Federal income

tax as follows:
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                           Additions to Tax, I.R.C., Sections
Year Deficiency     6654      6653(b)(1)(A) 6653(b)(1)(B)     6651(f)

1987 $14,635       $785.65   $10,976.25          *             --
1988   11,655       749.70     8,741.25          *             --
1989    6,096       412.26       --              --         $4,572.00
1991   10,309       589.18       --              --          7,731.75
1992   30,987     1,351.52       --              --         23,240.25
1993   38,523     1,614.10       --              --         28,892.25
1994   18,572       963.71       --              --         13,929.00
1995   12,458       675.47       --              --          9,343.50
1996   26,862     1,429.74       --              --         20,146.50
1997    4,033       215.76       --              --          3,024.75
   * 50 percent   of the interest on the deficiency.

Respondent also determined additions to tax under section 6663

for 1987 and 1988 but has now conceded that those additions to

tax are not due.   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.      The issues for decision are

whether petitioner’s underpayment of taxes and failure to file

tax returns for the years in issue were due to fraud and whether

a penalty should be awarded under section 6673 by reason of

petitioner’s groundless and frivolous positions maintained in

this proceeding.

                            FINDINGS OF FACT

     Some of the facts have been stipulated, and the stipulated

facts are incorporated in our findings by this reference.

Petitioner resided in New Smyrna Beach, Florida, at the time that

he filed his petition.
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     Petitioner is a computer software engineer, specializing in

software development, testing, and quality assurance.     From 1975

through 1980, petitioner was employed by various companies in the

computer field.   He was employed as a test technician, field

representative, engineering technician, test department manager

and supervisor, and software engineer.     He taught hardware and

software courses for employees and customers of two companies.

     Petitioner filed Federal income tax returns as a single

individual for 1972 through 1975 and jointly with his wife for

1976, 1977, and 1979 through 1981.     From 1987 through 1997,

petitioner failed to file Federal income tax returns.

     Petitioner did not maintain bank accounts in his name during

the years in issue because he refused to provide his Social

Security number to banking institutions.     From 1987 through 1997,

petitioner received compensation as an independent contractor in

the field of software development and quality assurance.     The

checks that he received in payment for his services were cashed

at the payers’ banks or through bank accounts maintained by his

wife, his mother, or his sister-in-law.

     Petitioner received gross receipts from his occupation as

follows:
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                 Year            Gross Receipts

                 1987                $41,011
                 1988                 36,141
                 1989                 22,866
                 1991                 36,939
                 1992                101,159
                 1993                125,591
                 1994                 64,118
                 1995                 44,257
                 1996                 84,656
                 1997                 17,772

In addition, petitioner received minor amounts of interest income

during these years.

     During the years in issue, petitioner accumulated cars,

boats, and motorcycles.    In 1996, petitioner and his wife

purchased a home in Florida.    The deed was recorded in the name

of petitioner’s wife.

     In 1991, the Internal Revenue Service (IRS) commenced an

investigation of petitioner’s Federal income tax liability for

1987 and 1988.   In a response to an administrative summons,

petitioner and his wife wrote a letter to the IRS that asserted

the following arguments:

          We must, first of all, inform you that we have no
     tax liability for the years in question. We must,
     secondly, inform you that we possess a number of rights
     and that we claim all of our rights at all times.

          A question of jurisdiction arises in your claim
     against us for the liability of any income tax. We are
     now, and were during the years in question, citizens of
     the State of New Hampshire. We do not now, and did not
     during the years in question, work or reside in any
     territory which is, or was, under exclusive federal
     jurisdiction. We are not now, and have never been,
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     operating under any privelege [sic] or engaging in any
     activity which generates revenue taxable income.

          Any tax on our property, the fruits of our labor,
     must fall within the context of the apportionment
     clauses of the United States Constituion [sic].

          Furthermore, whereas we possess other
     constitutionally protected rights, you lack any
     authority to require us to testify before you, to
     deliver to you any of our property or to provide you
     with any information.

          We do not wish to voluntarily confer jurisdiction
     over us.

In a letter dated January 1, 1992, petitioner and his wife

asserted the following:

          We are writing to inform you that the meeting
     arranged for us on January 3, 1992 is cancelled.

          As stated in our previous letter to you, we have
     no tax liability to the United States or the Internal
     Revenue Service; perhaps you do not understand our
     status. Furthermore, we have opened no accounts with
     respect to Title 26.

          We remind you that you lack any authority to
     “summons” us or to “seize” any of our property (see
     Hale v. Henkel).

          We have not voluntarily assesed [sic] ourselves
     (Flora v. U.S.) nor opened any accounts with you nor
     entered into any contractual agreement with you or the
     United States.

          Our status is such that we are not subject to the
     provisions of Title 26.

          Please provide proof of any such voluntary
     assesment [sic] or the existance [sic] of any
     “accounts” or that you have any proper jurisdiction
     over us before bothering us again.
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Petitioner continued to maintain similar arguments through

investigation of his liability for subsequent years, during a

criminal case brought against him, through trial of this

proceeding in February 2004, and in his posttrial brief.      The

criminal case that was commenced against petitioner was dismissed

in 2001 when the presiding judge indicated that the matter should

be pursued civilly rather than criminally.

       In 1998, petitioner and his wife incorporated a business as

Strategic Computer Solutions.    The corporation had employees,

including petitioner and his wife, and issued Forms W-2, Wage and

Tax Statement, at the end of each year.    Federal income taxes and

Social Security taxes on the employees, including petitioner and

his wife, were withheld, and the withheld taxes were paid to the

IRS.    Petitioner and his wife filed joint returns and reported

their wages for 1998 and subsequent years.

                                OPINION

       Petitioner has not raised any nonfrivolous arguments

concerning the amount of deficiencies determined in the statutory

notice.    He has asserted various arguments concerning procedural

matters and failures of the Government to prepare returns on his

behalf and to assess promptly the amounts owing.    He rejects the

Court’s explanation that assessment cannot occur until the

decision in this case is final.    See sec. 6213(a).   He

acknowledged during his testimony that he did not consult with
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any tax professionals on the legality of his position on taxes in

1987 through 1997.   He cites numerous cases out of context, while

ignoring those authorities contrary to his position.     He

summarizes his position as follows:

          It is my understanding that I’ve never been made
     liable for a tax. I don’t understand how one is made
     liable for a tax, but I have never received an
     assessment for any of the years in question. Up until
     the notice of deficiency, I’ve never received any
     indication that the Government is asking me to pay
     money; that the IRS is asking me to pay money.

Petitioner ignores the evidence concerning multiple notices to

him that he had failed to file required returns and the

investigation of his liability for 1987 and 1988 that commenced

in 1991 and resulted in criminal prosecution.     Petitioner claims

that he won the criminal case and therefore believes that he was

correct.   He also claims that his beliefs were reinforced by the

length of time that it took the IRS to proceed against him

civilly.   As is usual, however, civil proceedings awaited the

conclusion of the criminal matter.      See, e.g., Badaracco v.

Commissioner, 464 U.S. 386, 399 (1984); Taylor v. Commissioner,

113 T.C. 206, 212 (1999), affd. 9 Fed. Appx. 700 (9th Cir. 2001).

The notices of deficiency followed promptly after dismissal of

the criminal case.

     Petitioner’s arguments concerning liability are stale and

have been uniformly rejected.   No further discussion of them is

warranted.   See Lonsdale v. United States, 919 F.2d 1440 (10th
                               - 8 -

Cir. 1990); United States v. Ward, 833 F.2d 1538, 1539 (11th Cir.

1987); Biermann v. Commissioner, 769 F.2d 707 (11th Cir. 1985);

Waters v. Commissioner, 764 F.2d 1389 (11th Cir. 1985); Crain v.

Commissioner, 737 F.2d 1417 (5th Cir. 1984); Knighten v.

Commissioner, 702 F.2d 59 (5th Cir. 1983); Lonsdale v.

Commissioner, 661 F.2d 71, 72 (5th Cir. 1981), affg. T.C. Memo.

1981-122; Reading v. Commissioner, 70 T.C. 730 (1978), affd. 614

F.2d 159 (8th Cir. 1980).

     In the criminal context, the Government was required to

prove petitioner’s guilt beyond a reasonable doubt.    In this

case, respondent must prove, by clear and convincing evidence,

that petitioner had an underpayment of tax for 1987 and 1988 due

to fraud (sec. 6653(b)) and that his failure to file tax returns

for the other years in issue was fraudulent (sec. 6651(f)).      Sec.

7454(a); Rule 142(b).   Similar standards for proving fraud apply

under either statute.   See Clayton v. Commissioner, 102 T.C. 632,

653 (1994); Niedringhaus v. Commissioner, 99 T.C. 202, 211-213

(1992).   Fraud may be proved by circumstantial evidence, and the

taxpayer’s entire course of conduct may establish the requisite

fraudulent intent.   Rowlee v. Commissioner, 80 T.C. 1111, 1123

(1983).   Circumstantial evidence of fraud includes “badges of

fraud” such as those present here:     A longtime pattern of failure

to file returns, failure to report substantial amounts of income,

failure to cooperate with taxing authorities in determining the
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taxpayer’s correct liability, implausible or inconsistent

explanations of behavior, concealment of assets, and failure to

make estimated tax payments.   See, e.g., Bradford v.

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

Memo. 1984-601; Powell v. Granquist, 252 F.2d 56, 60 (9th Cir.

1958); Grosshandler v. Commissioner, 75 T.C. 1, 20 (1980);

Gajewski v. Commissioner, 67 T.C. 181, 199 (1976), affd. without

published opinion 578 F.2d 1383 (8th Cir. 1978).

     Petitioner stipulated to the payments received from 1988

through 1997.    He admitted during his testimony that he received

funds for work performed during each of the years in issue.

Proof of gross receipts is sufficient to satisfy respondent’s

burden of showing an underpayment for 1987 and 1988 in the

absence of evidence of offsetting deductions.    See, e.g.,

Greenwood v. Commissioner, T.C. Memo. 1990-362.    Petitioner has

neither argued nor shown that he had any offsetting deductions

not allowed in respondent’s determination.

     In defending the charge of fraud, petitioner attempts to

rely on his letters openly stating his position to the IRS.

Those letters, however, commenced only after his failure to

comply with his obligations had been discovered.    They are not

persuasive evidence negating fraud.     See Rowlee v. Commissioner,

supra at 1124.
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     Respondent cites petitioner’s resumption of filing returns

for 1998 and later years, after the investigation of him had

commenced, as evidence that petitioner was well aware of his

Federal tax obligations.    Petitioner argues that he filed returns

for 1998 and subsequent years because different laws apply to

corporations.   It appears, however, that petitioner continued to

receive compensation for services that he personally performed

and reported that compensation on his tax returns for 1998 and

subsequent years.   Notwithstanding his attempt to justify his

prior delinquencies, we believe that petitioner was knowledgeable

about his tax-paying responsibilities but “‘consciously decided

to unilaterally opt out of our system of taxation’” until the IRS

commenced its investigation of him.     Niedringhaus v.

Commissioner, supra at 212-213 (quoting Miller v. Commissioner,

94 T.C. 316, 335 (1990)).

     We are convinced that petitioner’s refusal to file tax

returns was willful and with knowledge that he was obligated to

file them and pay tax on his income.    His sudden “discovery” of

his frivolous positions after many years of apparent compliance,

his failure to consult any professionals or authorities on the

subject, and his refusal to acknowledge his errors through the

time of trial of this case undermine his claims of good-faith

belief.   Similar evidence has been held sufficient to support a

criminal conviction in other cases.     See, e.g., United States v.
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Sloan, 939 F.2d 499 (7th Cir. 1991); United States v. Collins,

920 F.2d 619 (10th Cir. 1990); United States v. Ward, supra;

United States v. Schiff, 801 F.2d 108 (2d Cir. 1986); United

States v. Karlin, 785 F.2d 90 (3d Cir. 1986); United States v.

Bressler, 772 F.2d 287 (7th Cir. 1985); United States v. Romero,

640 F.2d 1014 (9th Cir. 1981); United States v. Buras, 633 F.2d

1356 (9th Cir. 1980).

     When, as here, accompanied by evidence of intent to conceal

income and assets, the longtime pattern of failing to file tax

returns is sufficient to sustain the civil penalties.   See, e.g.,

Niedringhaus v. Commissioner, supra at 212-213; Rowlee v.

Commissioner, supra; Marsh v. Commissioner, T.C. Memo. 2000-11,

affd. 23 Fed. Appx. 874 (9th Cir. 2002); Houser v. Commissioner,

T.C. Memo. 2000-111; Harrell v. Commissioner, T.C. Memo.

1998-207, affd. without published opinion 191 F.3d 456 (7th Cir.

1999); Dunham v. Commissioner, T.C. Memo. 1998-52.   The penalties

for fraud in this case will be sustained.

     As indicated above, our conclusion that petitioner’s

underpayment of taxes and failure to file returns was due to

fraud is based on the objective facts and rejection of his claims

of good faith.   Our reasoning is supported in part by his refusal

to acknowledge that his positions are contrary to law, as he was

advised by the IRS, relevant authorities, and the Court in this

case.   Petitioner persists in his frivolous and groundless
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arguments through his posttrial brief.     Apparently petitioner

expects that, if he feigns sincere belief, he will avoid

penalties.    Petitioner is obviously intelligent and articulate,

but he has persevered too long to have any credibility.      Serious

sanctions are necessary to deter him and others similarly

situated.    Under these circumstances, section 6673 provides in

relevant part:

            SEC. 6673(a).   Tax Court Proceedings.--

                 (1) Procedures instituted primarily for
            delay, etc.--Whenever it appears to the Tax Court
            that--

                      (A) proceedings before it have been
                 instituted or maintained by the taxpayer
                 primarily for delay,

                      (B) the taxpayer’s position in such
                 proceeding is frivolous or groundless, or

                      (C) the taxpayer unreasonably failed to
                 pursue available administrative remedies,

            the Tax Court, in its decision, may require the
            taxpayer to pay to the United States a penalty not
            in excess of $25,000.

Petitioner was specifically warned by respondent and by the Court

of the likelihood of a penalty under section 6673 if he persisted

in his frivolous arguments, and he has persisted.      He did so even

when the Court ordered briefs limited to the question of fraud.

See Granado v. Commissioner, 792 F.2d 91, 94 (7th Cir. 1986),

affg. T.C. Memo. 1985-237.     A penalty will be awarded to the

United States in the amount of $20,000.
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To reflect the foregoing,


                                  An appropriate order and

                             decision will be entered for

                             respondent.
