                        T.C. Memo. 2003-241



                      UNITED STATES TAX COURT



          SAM F. FORD AND INGRID D. FORD, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 4691-99.             Filed August 13, 2003.



     Kenneth G. Gordon, for petitioner.

     Shirley M. Francis, for respondent.



                        MEMORANDUM OPINION


     WELLS, Chief Judge:   This case is presently before the Court

on two motions.   The first motion is petitioners' "Motion to

Suppress Evidence Illegally Obtained Through Violation of Fed. R.

Crim. P. Rule 6(e) and to Determine Issues of the Burden of

Proof".   The other motion is respondent's "Motion for Leave to

File Amendment to Answer to Amended Petition".   Unless otherwise

specified, all section references are to the Internal Revenue
                              - 2 -

Code, as amended, and all Rule references are to the Tax Court

Rules of Practice and Procedure, with the exception of references

to rule 6(e), which are made to that provision as contained in

the Federal Rules of Criminal Procedure.

Background

     Some of the facts have been stipulated.   The parties'

stipulation of facts and the accompanying exhibits are

incorporated by this reference.   Petitioners, Sam F. Ford

(hereinafter referred to as petitioner) and Ingrid Doorn Ford,

resided in Eugene, Oregon, when they filed their petition in this

case.

     Criminal Proceedings Against Petitioner

     On November 15, 1990, petitioner pled guilty, in the U.S.

District Court for the Southern District of New York, Case No. 90

Cr. 777 (WK), to one count of making a false statement to the

Securities and Exchange Commission, pursuant to 18 U.S.C. sec.

1001, and to one count of filing a false tax return for the

taxable year 1986, pursuant to section 7206(1).   In his

allocution incident to the guilty plea, petitioner stated:

     In this 1986 federal personal income tax return, I
     failed to include income in excess of $2.8 million
     dollars I had received from the sale of securities
     belonging to me which I had secreted in accounts in the
     name of my son and others. The income, however, was
     reported on my son's 1986 personal tax return and the
     tax was fully paid through him.
                               - 3 -

     In conjunction with his guilty plea, petitioner entered into

a cooperation agreement concerning other prosecutions.

Thereafter, during March and April of 1992, the District Court

conducted a 9-day "Fatico" hearing in petitioner's criminal case.

A Fatico hearing is a proceeding held before the sentencing of a

convicted criminal at which the prosecution and the defense may

introduce evidence relating to the appropriate sentence.1    The

principal issues addressed during petitioner's Fatico hearing

were whether petitioner had breached his cooperation agreement

and whether petitioner was truthful about his interest in or

control over certain foreign corporations and bank accounts.

     Assistant U.S. Attorney Andrew E. Tomback (AUSA Tomback)

represented the United States at the Fatico hearing.     His first

witness was Corporal Gregory James Pattison (Corporal Pattison)

of the Royal Canadian Mounted Police.   Corporal Pattison's duties

included his being assigned, during September of 1986, to an

investigation into the trading of shares in a company called

International Tillex.   His conduct of that investigation led to

an examination of trading in shares of a company known as Beverly

Development.   Corporal Pattison testified that petitioner, using

his own name or that of family members, had traded shares in both

International Tillex and Beverly Development through seven


     1
      See United States v. Lohan, 945 F.2d 1214, 1216 (2d Cir.
1991) (citing United States v. Fatico, 603 F.2d 1053 (2d Cir.
1979)).
                                - 4 -

corporate brokerage accounts.    Corporal Pattison identified those

brokerage accounts as "For Doorn Investments, Limited, Pooh Bear

Investments, Limited, the Bear and Pebbles Investments, Limited,

Canadian American Aquafarms International, Limited, Solar

Aquafarms, Limited, Toronado Resources and Blackbird

Investments."    Corporal Pattison further identified a schedule he

had prepared showing the net proceeds of trading in International

Tillex in those accounts, stating that the proceeds were in

excess of Can$8 million.

     AUSA Tomback next called Lawrence Leicht (Agent Leicht), a

revenue agent assigned to the U.S. Attorney's Office in criminal

investigations.    Agent Leicht had been assigned the case

involving petitioner and International Tillex during December of

1989 and had reviewed the records in the case that Corporal

Pattison had developed.    Agent Leicht had prepared schedules that

traced funds going through bank or brokerage accounts belonging

to petitioner or to members of his family.    Agent Leicht

identified petitioner as "the prime mover in the promotion of the

stock of Beverly Development from day one."    Agent Leicht also

identified the seven brokerage corporations addressed by Corporal

Pattison as the "7 Canadian corporations", although he clarified

this classification to include only six Canadian corporations,

because one of them, Blackbird, was in fact a Hong Kong

corporation.    During the course of his testimony, Agent Leicht
                                - 5 -

addressed Government exhibit 3A.    This exhibit consisted of some

schedules he had prepared before the Fatico proceeding; he

testified that they reflected "extensive additional monies from

Canada."    In response to an objection from Allison Manning,

petitioner's counsel in the criminal proceeding, AUSA Tomback

stated that the Government would not offer the schedules into

evidence.   He explained:

          I just seek to show because Ms. Manning went
     through at some length with Mr. Leicht to try to narrow
     down the figure, that the figure we're dealing with
     that Mr. Ford got is well above $2.3 million, it is
     certainly above the $3 million mark and I haven't even
     calculated it, but it is well above that as well. If
     Mr. Leicht were to sit down and calculate it, we can
     get a figure.

     At some point during the criminal proceedings, Agent Leicht

prepared a one-page handwritten document.    It was labeled

"Government exhibit 3 - For ID" and bore the heading "Corporate

Brokerage A/C's Gains & Losses 1985-86".    It was not, however,

entered into evidence during the Fatico hearing.    The document

(hereafter exhibit 3) contained the following information:
                                     - 6 -
 Brokerage Accounts          Total           Tillex      BVD        Other

Black Bird - 1986          $2,443,127     $1,826,439    $599,115    $17,573
Toronado   - 1986           1,376,606      1,081,071     235,142     60,393
Canadian American - 1986      351,888         87,678     267,654     (3,444)
    "       "     - 1985      130,690         52,640      12,705     65,345
Solar Aqua - 1986             384,262         60,726     305,704     17,832
   "   "   - 1985              48,759         38,199      10,560       --
Bear & Pebble - 1986           24,751         24,751       –     --
For Door - 1986               219,441        200,030       2,480     16,931
 "   "   - 1985               184,975        160,665      20,935      3,375
Pooh-Bear - 1986              284,408        267,930       –        16,478
 "     " - 1985               154,827        151,424       –         3,403
                            5,603,734      3,951,553   1,454,295    197,886

     Following the Fatico hearing, the U.S. Attorney for the

Southern District of New York, in a letter dated May 21, 1992,

advised respondent's Regional Counsel that

     On May 13, 1992 the court sentenced Mr. Ford to five
     years of imprisonment, three additional years of
     imprisonment suspended and five years probation.

          Pursuant to IRC §7602(c)(2)(B), the above action
     constitutes a termination of the referral, and as such,
     you are now free to seek appropriate civil action.

          You are reminded that rule 6(e) of the Federal
     Rules of Criminal Procedure greatly restricts the civil
     use of items constituting matters occurring before the
     Grand Jury.

     Eight days later, Regional Counsel's office advised the

District Director of Internal Revenue that it had closed

petitioner's criminal matter.           It advised that the matter "is

released for civil consideration."            It continued:

          You are reminded that no civil use of any grand
     jury material may be made without a rule 6(e) order,
     unless such material was made public through trial or
     otherwise. Additionally, the situations wherein a rule
     6(e) order can be obtained are greatly limited.
     Therefore all information subject to the secrecy
     requirements of rule 6(e) derived directly or
     indirectly through the grand jury process, inclusive of
     exhibits, descriptive statements in reports and all
                                 - 7 -

     copies thereof, must be purged from the Criminal
     Investigation Division files prior to closing in turn
     to the Chief, Examination Division.

     Administrative Proceedings Against Petitioner

     At some point during 1997, Marco I. Minervini of

respondent's Appeals Office in New York transmitted by facsimile

a file copy of a so-called 30-day letter to Sylvia McGee of the

Manhattan Examination Division.    The 30-day letter was dated May

21, 1996, and was addressed to petitioners.   It proposed

adjustments to their taxes for the year 1986.   The letter advised

that petitioners would have 30 days to have respondent's proposed

adjustments reviewed in respondent's Appeals Office.    It

contained two proposed upward adjustments for petitioners' income

in 1986–-one for $834,857 in short-term capital gains and the

other for $4,249,563 in long-term capital gains.   An accompanying

explanation stated that the adjustments in question were "as set

forth in Government exhibit #3, 90-CR-777-1."   Additionally, the

30-day letter included the following identical explanations

regarding each of the two proposed adjustments:    "These exclude

transactions in the names of Ingrid Doorn and Marc Ford, either

reported by taxpayers or reported elsewhere (by Marc Ford)."

Marc Ford is petitioner's son.

     Thereafter, respondent's District Counsel in Manhattan

(District Counsel) sent a memorandum dated October 13, 1998, to

the Chief of Manhattan Appeals, with an attention line to M.
                                - 8 -

Minervini, Appeals Officer.    The memorandum indicated that

District Counsel's office had reviewed a proposed notice of

deficiency with respect to petitioners for their taxable year

1986.    District Counsel's memorandum advised:

          We discovered errors in your calculation of the
     capital gains adjustments as set forth on exhibit A
     attached to the notice. The capital gains adjustments
     are based entirely upon an exhibit used in connection
     with the criminal case at docket no. 90-CR-777-1.
     Reliance on this document is necessary at this point
     because all of the supporting documentation is grand
     jury material and unavailable to the IRS until a rule
     6(e) Order is obtained. Consequently, without the
     supporting documentation, it is imperative that your
     computation match the numbers contained on exhibit #3.
     Accordingly, we have circled the numbers on your work
     paper (copy attached) that we think are incorrect and
     ask that you verify the accuracy of the numbers by
     comparing them to exhibit #3.

        Attached to the memorandum were workpapers that reflected

the capital gain totals that had been set forth in the 30-day

letter.    District Counsel had made minor changes to the gains

determined in two corporate brokerage accounts--a $3 change for

"Black Bird Investments" and a $60 change for "Tornado

Resources".    When these changes had been made, the totals for

those two entities, as well as the overall totals, exactly

matched those derived, for the year 1986, from exhibit 3, the

"Corporate Brokerage A/C's Gains & Losses 1985-86".
                                 - 9 -

     In the same memorandum, District Counsel further requested:

"Please obtain a copy of the transcript of the allocution

hearing.   * * *   The transcript is a matter of public record; it

is not grand jury material."2

     Respondent thereafter drafted the statutory notice of

deficiency issued to petitioners for their taxable year 1986,

using the figures as corrected to match those in exhibit 3.     In

the notice of deficiency, respondent determined that, for 1986,

petitioners had failed to report capital gains totaling

$5,084,483.   Respondent accordingly determined a deficiency of

$998,754 in petitioners' Federal income tax for their taxable

year ended December 31, 1986, plus an addition to tax for fraud

under section 6653(b)(1)(A) of $749,066 and a time-sensitive

penalty for fraud under section 6653(b)(1)(B).

     On January 29, 2001, respondent obtained an order, pursuant

to rule 6(e)(3)(C)(i), from the U.S. District Court for the

Southern District of New York.    The order grants respondent

access to grand jury information from petitioner's criminal

proceeding for purposes of the instant case.

     Proceedings Before This Court

     During the course of substantial pretrial activities before

this Court, respondent, on February 8, 2002, served upon


     2
      Although the evidence in the present proceedings contains
the transcript of proceedings in the Fatico hearing, it includes
few, if any, of the exhibits introduced during that hearing.
                             - 10 -

petitioners interrogatories including Interrogatory No. 1, which

reads as follows:

          When Sam Ford pled guilty to filing a false
     federal income tax return for the taxable year 1986, he
     admitted that he failed to report more than $2.8
     million dollars of income from the sale of securities
     during 1986. How did Sam Ford arrive at that amount of
     unreported income, and how was it computed? Please
     provide a breakdown of the shares he sold by date, by
     company, and by amount realized.

Petitioners responded to Interrogatory No. 1 as follows:

          Petitioner Sam Ford did not "arrive at" the amount
     of $2.8 million that was the subject of the plea in
     question. Rather, the federal Government "arrived at"
     said amount after examining the return of Marc J. Ford.
     The breakdown of shares sold by date, by company and
     the amount realized, that are relative to said amount,
     should be set forth on the 1986 return of Marc J. Ford.

     Petitioners also served interrogatories upon respondent,

including Interrogatory No. 40.   Subsequently, a revised version

of Interrogatory No. 40 was served upon respondent.   Revised

Interrogatory No. 40 reads as follows:

     What evidence does the respondent have that the $2.8
     million reported on Marc Ford's return and the subject
     of the allocution was realized on the shares giving
     rise to the adjustment discussed in exhibit A to the
     statutory notice, such evidence to include specific
     identification of shares disposed of including dates of
     disposition, amounts realized and basis.

On May 8, 2002, respondent issued an eight-page response to

petitioners' revised Interrogatory No. 40 as follows:

          The respondent does not have direct evidence that
     the Tillex and the Beverly Development stock, which
     gave rise to the capital gains adjustment in the notice
                              - 11 -

     of deficiency for the taxable year 1986, are the identical
     shares of Tillex and Beverly Development stock which Marc
     Ford purportedly sold in 1986.

          The circumstantial evidence linking petitioner Sam
     Ford's admitted unreported income for the year 1986 in
     excess of $2.8 million from the sale of securities he
     secretly held in the names of such nominees as Marc
     Ford, the Tillex and the Beverly Development stock
     purportedly sold in 1986 by Marc Ford when it belonged
     to petitioner Sam Ford, and the capital gains
     adjustment for the disposition of the Tillex and the
     Beverly Development stock in the statutory notice is
     compelling.

     In that response, respondent also listed five items of

circumstantial evidence to which respondent referred above.     The

first item is petitioner's admission in his allocution that he

had failed to report income of $2.8 million "which I had secreted

in the name of my son and others."     The second item is a

probation officer's report indicating that between 1984 and 1987

petitioner received "income from the sale of shares of Tillex

stock which netted $2,500,000 in profits."     The third item is the

adjustment for capital gains contained in the statutory notice of

deficiency indicating that petitioners had failed to report

capital gains from the sale of stock in Tillex and Beverly

Development in the total amount of $5,084,483, with a resulting

increase in taxable income of $2,341,878.     The fourth item is

respondent's indication that, at the trial of the instant case,

petitioner's son Marc Ford would testify that he sold stock in

Tillex and Beverly Development during 1986 for a net gain of

$2,807,704.   The fifth item was a citation of petitioners'
                              - 12 -

response to Interrogatory No. 1, indicating that petitioners had

not arrived at the $2.8 million figure, but rather that the

Federal Government had arrived at that amount by examining the

return of petitioners' son Marc J. Ford.   In the penultimate

section of respondent's response to Revised Interrogatory No. 40,

entitled "The reasonable inference to be drawn", respondent

stated:   "The adjustment for capital gains in the statutory

notice includes the gains from the disposition of the Tillex and

Beverly Development stock, which was purportedly sold by Marc

Ford in 1986."

     Respondent's response to Revised Interrogatory No. 40

concluded with the following statement:

          Furthermore, the petitioners' alleging, for the
     first time during the teleconference with the Court on
     April 30, 2002, that their admitted unreported $2.8
     million of income for the taxable year 1986 is
     unrelated to, and in addition to, the unreported
     capital gains set forth in the statutory notice, is
     inconsistent with their responses to the respondent's
     interrogatories.

     At the call of the instant case for trial, petitioners filed

the first motion now before us, entitled "Motion to Suppress

Evidence Illegally Obtained Through Violation of Fed. R. Crim. P.

Rule 6(e) and to Determine Issues of the Burden of Proof".     In

their motion, petitioners assert that respondent had obtained

exhibit 3 in violation of rule 6(e).   Petitioners urge that, as a

result of the alleged violation, respondent's use of the document

should be suppressed and, further, that respondent should bear
                             - 13 -

"the burden of going forward to establish the deficiency based

upon evidence acquired independent of the grand jury."

     Respondent obtained a continuance, and thereafter, the Court

granted the parties' joint motion to submit the issues in

petitioners' motion as fully stipulated under Rule 122.

     Respondent filed the other motion now before us, seeking

leave to file an amendment to the answer to the amended petition.

Respondent's motion refers to a statement by petitioners' counsel

during a telephone conference call with this Court April 30.    In

that statement petitioners' counsel allegedly indicated that the

$2.8 million of unreported income which petitioner admitted in

the allocution in his criminal case was not the same unreported

income which is set forth in the notice of deficiency for

petitioners' taxable year 1986.   Although respondent's response

to Revised Interrogatory No. 40 had indicated a belief that the

$2.8 million was included in the notice of deficiency,

respondent's proposed amendment now seeks to assert that

petitioners owe taxes on that additional $2.8 million of

unreported income to which petitioner admitted in his allocution.

Respondent's amendment also seeks additional penalties for fraud.

Discussion

     Petitioners' Motion To Suppress

     With certain exceptions, rule 6(e) prohibits Government

attorneys from disclosing "matters occurring before the grand
                                   - 14 -

jury".3   The rule carries out the well-established principle that

grand jury matters should generally not be disclosed and that the

grand jury system requires secrecy.         Lombardo v. Commissioner, 99

T.C. 342, 360 (1992) (citing Douglas Oil Co. v. Petrol Stops

Northwest, 441 U.S. 211, 218-219 (1979)), affd. sub nom. Davies

v. Commissioner, 68 F.3d 1129 (9th Cir. 1995); Berkery v.

Commissioner, 91 T.C. 179, 188 (1988), affd. per order 872 F.2d

411 (3d Cir. 1989).    Under rule 6(e), Government attorneys should



     3
      As it was in effect during the years in issue, rule 6(e)(2)
provided, in pertinent part, as follows:

          (2) General Rule of Secrecy. A grand juror, an
     interpreter, a stenographer, an operator of a recording
     device, a typist who transcribes recorded testimony, an
     attorney for the Government, or any person to whom
     disclosure is made under paragraph (3)(A)(ii) of this
     subdivision shall not disclose matters occurring before the
     grand jury, except as otherwise provided for in these rules.
     No obligation of secrecy may be imposed on any person except
     in accordance with this rule. A knowing violation of rule 6
     may be punished as a contempt of court.

     Certain exceptions to the above secrecy rule are provided in
rule 6(e)(3). One of those exceptions, rule 6(e)(3)(C)(i),
provides as follows:

           (3)   Exceptions.

                 *    *        *     *      *     *     *

           (C) Disclosure otherwise prohibited by this rule of
           matters occurring before the grand jury may also be
           made--

           (i) when so directed by a court preliminarily to or in
           connection with a judicial proceeding;
                               - 15 -

not disclose grand jury matters to the Internal Revenue Service

for use in determining or litigating civil tax liability without

a showing of particularized need.   Upon such a showing, however,

Government attorneys may obtain a "rule 6(e) order" from the

District Court permitting such disclosure.   United States v.

Baggot, 463 U.S. 476 (1983); United States v. Sells Engg., Inc.,

463 U.S. 418 (1983).

     We have, in one instance, sanctioned the Commissioner, where

some of the Commissioner's employees engaged in "extreme and

substantial" breaches of grand jury secrecy, one which was

"intentional and flagrant" and lasted "over a period of many

years".   Cohen v. Commissioner, T.C. Memo. 1981-345.   On the

other hand we have indicated that we shall not impose such

sanctions when doing so would not serve the interests of justice,

such as, for example, when "'only isolated and technical

instances of improper disclosure had occurred.'"   Crop

Associates--1986 v. Commissioner, T.C. Memo. 2000-216 (quoting

Ballas v. United States (In re Grand Jury Proceedings), 62 F.3d

1175, 1178 (9th Cir. 1995)).

     Rule 6(e) "'is intended only to protect against disclosure

of what is said or takes place in the grand jury room * * * it is

not the purpose of the Rule to foreclose from all future

revelation to proper authorities the same information or

documents which were presented to the grand jury.'"     United
                               - 16 -

States v. Dynavac, Inc., 6 F.3d 1407, 1411 (9th Cir. 1993)

(quoting United States v. Interstate Dress Carriers, Inc., 280

F.2d 52, 54 (2d Cir. 1960)).   Thus, if a document is sought for

its own sake, rather than to learn what took place before the

grand jury, and if its disclosure will not compromise the

integrity of the grand jury process, rule 6(e) does not prohibit

its release.   Id. at 1411-1412.

     It is also established that, once grand jury material has

been admitted as evidence in a criminal trial, it becomes part of

the public record and thus is not subject to rule 6(e).     Sisk v.

Commissioner, 791 F.2d 58, 60 (6th Cir. 1986); In re Special

February, 1975 Grand Jury, 662 F.2d 1232, 1236-1237 n.10 (7th

Cir. 1981), affd. sub nom. United States v. Baggot, 463 U.S. 476

(1983); Bell v. Commissioner, 90 T.C. 878, 903-904 (1988); see

Gavosto v. Commissioner, T.C. Memo. 1994-481.   To similar effect,

in Green v. Commissioner, T.C. Memo. 1993-152, affd. without

published opinion 33 F.3d 1378 (5th Cir. 1994), this Court

stated:

     Evidence which is presented at a criminal trial is not
     protected by the guarantees of secrecy surrounding
     grand jury investigations, but rather is a matter of
     public record. * * * Consequently, respondent is not
     prohibited from using evidence brought before a grand
     jury which was subsequently used at petitioner's
     criminal trial to determine petitioner's * * * civil
     tax liability.

     Petitioners allege that respondent obtained exhibit 3 well

before respondent obtained a rule 6(e) order and, in so doing,
                               - 17 -

violated rule 6(e).   Accordingly, because respondent used exhibit

3 to prepare the statutory notice of deficiency in the instant

case, they move that we both suppress use of exhibit 3 and shift

to respondent the burden of proof as to the proposed

deficiencies.

     We decline to grant petitioners' motion.    Petitioners have

failed to make even a prima facie case for the proposition that

exhibit 3 was "grand jury material."    See Blalock v. United

States, 844 F.2d 1546, 1551-1552 (11th Cir. 1988).    Petitioners

have not identified the grand jury, when it met, who convened it,

or who its targets were.4   Petitioners themselves have not sought

a rule 6(e) order to ascertain whether there was a violation of

the rules relating to grand juries.     See DiLeo v. Commissioner,

T.C. Memo. 1989-540, affd. 959 F.2d 16 (2d Cir. 1992).    Exhibit 3

in no way indicates that the information it listed was connected

with a grand jury investigation.   Although exhibit 3 lists some

trading gains and losses, it does not indicate who controlled the

brokerage accounts or whether any taxes were owing or paid as a

result of the net gains.    Additionally, during the administrative

phase of the instant case, the record reveals that Government

officials repeatedly cautioned against revealing any grand jury



     4
      The only reference we have found to a grand jury during the
Fatico hearing is an indirect reference to some unrelated
documents that were produced earlier pursuant to a grand jury
summons.
                                - 18 -

materials.    Indeed, the only evidence showing that exhibit 3 has

any relation to a grand jury is the memorandum of District

Counsel explaining that, unlike other documents involving

petitioner, exhibit 3 may be used in a civil proceeding because

it is not grand jury material.     This narration scarcely

constitutes evidence that exhibit 3 was grand jury material.

     Additionally, even if exhibit 3 constituted grand jury

material, its contents were publicly revealed in 1992 during the

Fatico proceeding.    We have set forth supra p. 6 the entire

contents of exhibit 3.     It is a handwritten listing of a few

columns of numbers.     Arguably, it would be possible to deduce

from exhibit 3 that seven named corporate brokerage accounts had

several million dollars in gains resulting from trading in Tillex

Enterprises, BVD (an abbreviation for Beverly Development), and

"other".     All of that information, however, was brought out in

open court during the 9 days of petitioner's Fatico hearing.        In

that hearing, Corporal Pattison testified that petitioner had

traded shares in both International Tillex and Beverly

Development through the seven corporate brokerage accounts.       He

identified those accounts, and they are the same as those

accounts named on exhibit 3.     Corporal Pattison further testified

that petitioner's trading in International Tillex alone produced

gains in excess of Can$8 million.     Agent Leicht subsequently

corroborated Corporal Pattison's testimony, indicating that
                               - 19 -

petitioner's trading in Tillex and Beverly Development through

the seven brokerage accounts had produced gains of several

million dollars in U.S. currency.

     The only information not reflected in the transcript of

petitioner's Fatico hearing that does not also appear in exhibit

3 is the specific dollar amounts of the unreported "millions" in

gains and losses.    Yet, as we have noted, it appears that the

specific dollar amounts had not even been calculated at the time

of the Fatico hearing, which occurred at the end of the criminal

proceedings against petitioner.    During the Fatico hearing, AUSA

Tomback explained that, although he had not calculated the exact

amount of petitioner's gains, "it is certainly above the $3

million mark and * * * it is well above that as well.    If Mr.

Leicht were to sit down and calculate it, we can get a figure."

Thus the precise figures in exhibit 3 apparently were never seen

by an earlier empaneled grand jury, and they in no way indicated

the pattern of the grand jury investigation or the deliberations

of the grand jury.    Accordingly, these figures were not "matters

occurring before a grand jury" and "are not subject to the

secrecy provisions of rule 6(e)."    United States v. Phillips, 843

F.2d 438, 441 (11th Cir. 1988).    Moreover, the specific figures

would have constituted only sparse "summaries that reveal nothing

about what transpired before the grand jury", regardless of
                              - 20 -

whether they had been presented to the grand jury.   In re Grand

Jury Matter, 697 F.2d 511, 513 (3d Cir. 1982).

     In view of the foregoing, we hold that petitioners have not

shown that respondent's deficiency determination was based upon

matters before the grand jury.   Moreover, even if the

determination had been based upon matters occurring before a

grand jury, these matters were disclosed in the later criminal

proceedings against petitioner and thus were no longer subject to

the secrecy requirements of rule 6(e).

     Since we have held that respondent's use of exhibit 3 did

not violate rule 6(e), we have no occasion to consider whether

shifting the burden of proof as to the deficiencies at issue

would be an appropriate remedy for a violation of that rule.   See

DiLeo v. Commissioner, 959 F.2d at 21.

     Respondent's Motion

     On January 30, 2003, respondent filed the second motion now

before us, seeking leave to file an amendment to the answer to

the amended petition.   Respondent's motion refers to an alleged

statement of petitioners' counsel during a telephone conference

call with this Court.   In that statement, petitioners' counsel

allegedly indicated that the $2.8 million of unreported income

which petitioner admitted in the allocution of his criminal case

was not the same unreported income which is set forth in the

notice of deficiency for petitioners' taxable year 1986.
                              - 21 -

Respondent's proposed amendment now seeks to assert that

petitioners owe taxes on that additional $2.8 million of

unreported income, plus additional penalties for fraud.

     Whether a motion seeking amendment should be allowed lies

within the sound discretion of the Court.    Rule 41(a); Estate of

Quick v. Commissioner, 110 T.C. 172, 178 (1998); Law v.

Commissioner, 84 T.C. 985, 990 (1985).    In deciding the justice

of a proposed amendment, we must examine the particular

circumstances in the case before us.     Estate of Quick v.

Commissioner, supra; Law v. Commissioner, supra.     We consider,

among other factors, whether an excuse for the delay exists and

whether the opposing party would suffer unfair surprise,

disadvantage, or prejudice if the motion to amend were granted.

Estate of Quick v. Commissioner, supra; Nolte v. Commissioner,

T.C. Memo. 1995-57, affd. without published opinion 99 F.3d 1146

(9th Cir. 1996); Estate of Ravetti v. Commissioner, T.C. Memo.

1992-697; Spain v. Commissioner, T.C. Memo. 1978-270.

     Respondent's motion appears to indicate a change in

position.   In respondent's response to petitioners' Revised

Interrogatory No. 40, respondent earlier indicated that, although

respondent lacks direct evidence that the $2.8 million from

petitioner's allocution was included in computing the determined

deficiency, the circumstantial evidence that this amount has been

included is "compelling".   Our own review of respondent's
                              - 22 -

"compelling" evidence fails to convince us that the $2.8 million

of unreported income from stock sales during 1986 was, in fact,

included in the original notice of deficiency.   Respondent's five

examples are, in general, vague and secondhand reports of income.

Both petitioner's allocution and the proffered testimony of

petitioner's son Marc Ford reflect that petitioners received $2.8

million in unreported income from stock sales during 1986.

Neither petitioner's allocution nor the proffered testimony of

petitioner's son Marc Ford, however, demonstrates that the $2.8

million amount is included in the more than $5 million of

unreported gains from the sale of that stock determined in the

notice of deficiency.   Moreover, respondent's response to

petitioners' Revised Interrogatory No. 40 fails to explain the

apparently inconsistent language found in the file copy of the

"30-day letter" dated May 21, 1996.    That document stated that,

with respect to the adjustments in issue:   "These exclude

transactions in the names of Ingrid Doorn and Marc Ford, either

reported by taxpayers or reported elsewhere (by Marc Ford)."

     Apparently, respondent now has had second thoughts about

that "compelling" evidence and, accordingly, in the motion before

us, seeks additional taxes and penalties on the theory that the

$2.8 million in stock sale gains was not included in the notice

of deficiency.
                              - 23 -

      Petitioners' reply to respondent's motion finds it "rather

absurd" that respondent has sought information from petitioners

regarding the contents of the deficiency notice.   Petitioners'

reply, however, does not deny that during the April 30 conference

call, petitioners' counsel did, in fact, state that the $2.8

million addressed in petitioner's allocution was not included in

the $5 million determined deficiency.   Accordingly, petitioners'

reply does not contravene, and may in fact support, respondent's

assertion that petitioners may be liable for taxes on an

additional $2.8 million in unreported income.

      The matter should be sorted out, and, because it may involve

an increase to the determined deficiency, the proper way to

address it is through an amendment to the pleadings, under Rule

41.   We are mindful of petitioners' general complaints of

prejudice should we grant respondent's motion, and we are aware

that respondent did not file the proposed amendment until 9

months after the telephone conference call with the Court.

Although unexplained, the delay does not appear particularly

harmful when compared to the time this case has already consumed,

and although petitioners complain that allowing the proposed

amendment may require further efforts on their part, we do not

think that possibility would be unduly prejudicial to them.    The

instant case has not been tried, nor is there a date set for a

trial.   Moreover, Rule 142 places upon respondent the burden of
                               - 24 -

proving that, during 1986, petitioners received $2.8 million in

unreported income that respondent had not included in the

statutory notice of deficiency.

     Our decision to grant respondent's motion is further

informed by section 6212(c).   That provision authorizes the

Commissioner to issue an additional notice of deficiency while a

case is before us "in the case of fraud".    We have given that

provision full effect, where, as in the instant case, respondent

has earlier sought to file an amended pleading asserting fraud.5

Burke v. Commissioner, 105 T.C. 41 (1995).    Accordingly, even if

we should deny respondent's motion to amend his answer and assert

an increased deficiency, including fraud, it appears that section

6212(c) would permit respondent to issue a new statutory notice

of deficiency determining the same matters that respondent

asserts in the proposed amendment to amended answer.    We see no

reason to require the parties to leap over these additional

procedural hurdles.   See Arthur A. Everts Co. v. Commissioner, a



     5
      Sec. 6212(c)(1), in pertinent part, provides as follows:

          SEC. 6212(c).   Further Deficiency Letters
     Restricted.--

               (1) General Rule.--If the Secretary has mailed to
          the taxpayer a notice of deficiency as provided in
          subsection (a), and the taxpayer files a petition with
          the Tax Court within the time prescribed in section
          6213(a), the Secretary shall have no right to determine
          any additional deficiency of income tax for the same
          taxable year, * * * except in the case of fraud, * * *.
                             - 25 -

Memorandum Opinion of this Court dated Aug. 12, 1949.

Accordingly, respondent's motion to amend the answer will be

granted.

     As the foregoing discussion makes obvious, our rulings on

these motions will require substantial additional proceedings

before the instant case is properly submitted for decision.

Therefore, acting on our own motion, we shall vacate our earlier

order dated October 17, 2002, to the extent that it granted the

parties' "Joint Motion for Leave to Submit Motion for Decision

Under Tax Court Rule 122."

     To reflect the foregoing,


                                      An order will be issued

                                 denying petitioners' Motion to

                                 Suppress Evidence Illegally

                                 Obtained through Violation of Fed.

                                 R. Crim. P. Rule 6(e) and to

                                 Determine Issues of the Burden of

                                 Proof, granting respondent's Motion

                                 for Leave to File Amendment to

                                 Answer to Amended Petition, and

                                 vacating our order granting the

                                 parties' Joint Motion for Leave to

                                 Submit Motion for Decision Under

                                 Tax Court Rule 122.
