                   T.C. Summary Opinion 2011-128



                      UNITED STATES TAX COURT



                   OLLIE B. STONE, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 1001-08S.               Filed November 1, 2011.



     Ollie B. Stone, pro se.

     Anne W. Bryson, and Susan S. Hu for respondent.



     MORRISON, Judge:   This case was heard pursuant to section

7463 of the Internal Revenue Code in effect when the petition was

filed.   Under section 7463(b), the decision to be entered is not

reviewable by any other court, and this opinion shall not be

treated as precedent for any other case.1


     1
      Unless otherwise indicated, all further section references
are to the Internal Revenue Code in effect for the years in
                                                   (continued...)
                                - 2 -

     On October 22, 2007, respondent (“the IRS”) issued

petitioner, Ollie B. Stone, a notice of deficiency for tax years

1994, 1995, 1996, and 1997.    The notice stated that the IRS had

determined that Stone had deficiencies in tax of (i) $5,579 for

1994, (ii) $6,042 for 1995, (iii) $6,902 for 1996, and (iv)

$13,973 for 1997.    The notice also stated that the IRS had

determined that Stone was liable for fraud penalties under

section 6663(a) of (i) $4,184.25 for 1994, (ii) $4,531.50 for

1995, (iii) $5,176.50 for 1996, and (iv) $10,479.75 for 1997.

     Stone timely filed a petition challenging the IRS’s

determinations.    He was a District of Columbia resident at the

time of filing.

     We have jurisdiction to redetermine the amounts of Stone’s

deficiencies and to determine whether Stone is liable for the

fraud penalties.    See sec. 6214(a).

                              Background

     The parties stipulated some facts; those facts are so found.

     Stone was a public servant during the years at issue, 1994

through 1997.   He worked for the federal government as a utility

systems repair operator leader for the General Services

Administration at the Suitland federal complex in Maryland.    As

part of his job, Stone was responsible for repair and maintenance


     1
      (...continued)
issue, and all Rule references are to the Tax Court Rules of
Practice and Procedure.
                                 - 3 -

projects.    These projects included work on the complex’s heating,

electrical, ventilation, and air-conditioning systems.

     The General Services Administration outsourced some of the

repair and maintenance work to private contractors.      If a

project’s estimated cost was above $2,500, the General Services

Administration used a bidding process to select contractors.       No-

bid contracts were used for projects below $2,500.

     Stone played an important role in the contracting process.

He helped determine which projects would be outsourced.      His

managers relied on his representations about the need for and the

cost of these projects.    And he recommended contractors for the

no-bid contracts.

     For obvious reasons, workers in Stone’s position were

prohibited from accepting things of value from contractors.        Yet

Stone received cash, goods, and services from contractors working

at Suitland.    The parties stipulated that he received the

following:

     C      In 1994, Stone received $21,709 in money and property

            from CRT Electric.   CRT paid him $19,000 by 11 checks

            and bought him a Jacuzzi valued at $2,709.

     C      In 1995, Stone received $22,100 from CRT Electric and

            JEC Industries.   CRT paid him $20,100 by 10 checks, and

            JEC paid him $2,000 by 1 check.
                                - 4 -

     C    In 1996, Stone received $19,535 in money, services, and

          property.    CRT Electric paid him $13,745 by 9 checks

          and bought him musical equipment and installation

          services valued at $790.      JEC Industries paid $5,000

          for renovation work on his home.

     C    In 1997, Stone received $47,363 in money, services, and

          property.    CRT Electric paid him $28,820 by 7 checks,

          bought him musical equipment valued at $2,099, and

          bought him supplies valued at $2,597 for renovating the

          interior of his home.   JEC Industries bought him

          cabinets valued at $1,619 and paid $2,900 for work on

          his truck.   Michael Lewis bought Stone furniture valued

          at $2,334 and gave him supplies valued at $2,444 for

          building a deck and a walkway.      Lewis’s company paid

          $2,750 to have Stone’s deck and walkway built.

          Christopher T. Fitzgerald paid Stone $1,800 by 2

          checks.2

     Stone did not report the money, goods, or services he

received from the contractors on his tax returns.      For each year

at issue, Stone timely filed a Form 1040, U.S. Individual Income

Tax Return.   The only income items he reported for those years

were wages; taxable interest; and taxable refunds, credits or



     2
      The parties stipulated that Stone received $1,800 from
Fitzgerald but provided no further explanation about this amount.
                                - 5 -

offsets of state and local income taxes.      Stone reported the

following income for each year:

                                             Refunds,
                                            credits, or
                                            offsets of
         Year      Wages       Interest        taxes      Total
         1994      $35,366         0           $363       $35,729
         1995      37,946        $13            952       38,911
         1996      42,711          0              0       42,711
         1997      44,233        240              0       44,473

     In October 2001, a federal grand jury in Maryland charged

Stone with 13 counts, including conspiracy, submitting false

claims, filing false tax returns, and accepting payments as a

public official.    Stone pleaded guilty to four counts of filing

false tax returns in violation of section 7206(1), one count for

each of the years at issue.3    After trial in the U.S. District

Court for the District of Maryland, Stone was convicted of

conspiracy in violation of 18 U.S.C. sec. 371, acceptance of

payment by a public official in violation of 18 U.S.C. sec.

201(c)(1)(B), and five counts of submission of false claims in

violation of 18 U.S.C. sec. 287.       The court sentenced him to 7

years in prison.




     3
      Under sec. 7206(1), a person commits a felony if that
person “Willfully makes and subscribes any return, statement, or
other document, which contains or is verified by a written
declaration that it is made under the penalties of perjury, and
which he does not believe to be true and correct as to every
material matter”.
                               - 6 -

     On October 22, 2007, the IRS issued Stone the notice of

deficiency for tax years 1994, 1995, 1996, and 1997.   The IRS

determined that Stone failed to report the following amounts of

gross income:   (i) $21,709 for 1994, (ii) $22,100 for 1995, (iii)

$24,635 for 1996, and (iv) $48,152 for 1997.   Stone conceded that

the amounts determined in the notice of deficiency were correct

for 1994 and 1995.   The parties agreed that the correct amount

for 1996 was $19,535 and that the correct amount for 1997 was

$47,362.   The notice stated that the IRS determined the following

deficiencies in tax:   (i) $5,579 for 1994, (ii) $6,042 for 1995,

(iii) $6,902 for 1996, and (iv) $13,973 for 1997.   And the notice

stated that the IRS determined that Stone was liable for the

following penalties under section 6663(a):   (i) $4,184.25 for

1994, (ii) $4,531.50 for 1995, (iii) $5,176.50 for 1996, and (iv)

$10,479.75 for 1997.

                            Discussion

     The parties have agreed on the amounts of unreported income.

Stone conceded that he had unreported income of $21,709 for 1994

and $22,100 for 1995, the amounts determined in the notice of

deficiency.   The parties have agreed that Stone had unreported

income of $19,535 for 1996 and $47,362 for 1997, slightly less

than the amounts determined in the notice of deficiency.

     The parties disagree on (i) whether Stone is liable for the

section 6663(a) penalties and (ii) whether section 6501(c)(1)
                                 - 7 -

permits the IRS to assess taxes for the years at issue.   As we

explain below, Stone is liable for the section 6663(a) penalties,

and section 6501(c)(1) permits the IRS to assess taxes for the

years at issue.

I.   Section 6663(a) Penalty

     Section 6663(a) provides:    “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

IRS has the burden of proving that a taxpayer is liable for the

section 6663(a) penalty by clear and convincing evidence.    Sec.

7454(a); Rule 142(b); see also Feller v. Commissioner, 135 T.C.

497, 501 (2010).   If the IRS proves that part of an underpayment

for a tax year is due to fraud, we treat the entire underpayment

for that year as due to fraud, unless the taxpayer shows by a

preponderance of the evidence that another part of the

underpayment is not due to fraud.    Sec. 6663(b).

     The parties have stipulated that underpayments existed for

all four years at issue.   The underpayments consisted of the

taxes that Stone failed to report on the money, property, and

services he received from the contractors.    We find that the IRS

has shown by clear and convincing evidence that the entire
                              - 8 -

underpayment for each year at issue is attributable to fraud for

the following reasons:4

     C    Stone consistently failed to report substantial amounts

          of income over a period of years.    See Klassie v.

          United States, 289 F.2d 96, 101 (8th Cir. 1961) (“A

          consistent pattern of underreporting large amounts of

          income over a period of years is substantial evidence

          * * * [of] an intent to defraud”).

     C    Stone engaged in criminal activity as shown by his

          convictions for accepting a payment in violation of 18

          U.S.C. sec. 201(c)(1)(B) and submitting false claims in

          violation of 18 U.S.C. sec. 287.    See Petzoldt v.

          Commissioner, 92 T.C. 661, 701 (1989) (stating that the

          taxpayer’s convictions of crimes related to the

          understatement were evidence of fraudulent intent);

          McGee v. Commissioner, 61 T.C. 249, 260 (1973) (stating



     4
      The IRS also claims that Stone admitted that he did not
report income so that he would not have to pay tax on it. We
disagree. On cross-examination, the IRS asked Stone whether he
did not report the income so he would not have to pay tax on it.
According to the transcript, Stone answered: “Well, I mean, I
just didn’t think of it like that. I just went on, but the
bottom line would be yes. At the end of the day, that’s what it
would look like.” Given the transcript’s punctuation, the IRS’s
interpretation is plausible. But we believe the last part of
Stone’s answer is properly punctuated as “but the bottom line
would be yes, at the end of the day that’s what it would look
like.” In other words, we understand Stone’s answer to be a
denial followed by an acknowledgment that it could appear as if
he did not report the income to avoid paying taxes.
                        - 9 -

    that we may infer fraudulent intent from evidence a

    taxpayer was attempting to defraud another), affd. 519

    F.2d 1121 (5th Cir. 1975).

C   Stone engaged in criminal activity as shown by his

    pleading guilty to filing false tax returns in

    violation of section 7206(1).   See, e.g., Evans v.

    Commissioner, T.C. Memo. 2010-199 (stating that

    pleading guilty to violating section 7206(1) was

    evidence of fraud); Valbrun v. Commissioner, T.C. Memo.

    2004-242 (stating that conviction under section 7206(1)

    is persuasive evidence of intent to evade tax).

C   Many of the payments Stone received were in the form of

    labor, supplies, or other property and thus were easier

    to conceal from the IRS.    See Spies v. United States,

    317 U.S. 492, 499 (1943) (stating that fraud may be

    inferred from “any conduct, the likely effect of which

    would be to mislead or to conceal”); Robinson v.

    Commissioner, T.C. Memo. 1990-235 (finding fraud where

    county worker did not report similar kickbacks).

C   Stone’s cashing the checks he received, rather than

    depositing them into his bank account, made the checks

    less likely to be discovered by the IRS.    See Spies v.

    Commissioner, supra at 499.
                               - 10 -

      We also find that Stone has not proven by a preponderance of

the evidence that any part of the underpayments was not

attributable to fraud.

II.   Statute of Limitations

      Generally, the IRS must assess income tax within three years

of the later of (i) the date a taxpayer files a return or (ii)

the last day prescribed by law or by regulations for filing the

return.   Sec. 6501(a) and (b)(1); see also secs. 301.6501(a)-

1(a), 301.6501(b)-1(a), Proced. & Admin. Regs.   But if part of an

underpayment in a year is due to fraud, section 6501(c)(1) allows

the IRS to assess the tax for that year at any time.   Sec.

6501(c)(1); sec. 301.6501(c)-1(a), Proced. & Admin. Regs.; Lowy

v. Commissioner, 288 F.2d 517, 520 (2d Cir. 1961), affg. T.C.

Memo. 1960-32.

      The determination of fraud for section 6501(c)(1) purposes

is the same as the determination of fraud for section 6663(a)

purposes.   Neely v. Commissioner, 116 T.C. 79, 86 (2001); Rhone-

Poulenc Surfactants & Specialties, L.P. v. Commissioner, 114 T.C.

533, 548 (2000).   And as we have already explained, Stone is
                             - 11 -

liable for the section 6663(a) penalty for each year at issue.

Thus under section 6501(c)(1), the IRS may assess the taxes for

1994, 1995, 1996, and 1997 at any time.

     To reflect the foregoing,


                                          Decision will be entered

                                  under Rule 155.
