                        T.C. Memo. 1999-137



                      UNITED STATES TAX COURT



     CARL C. POSTON III and SHEREA A. POSTON, Petitioners
         v. COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 14172-98.               Filed April 26, 1999.


     John L. Green, for petitioners.1

     Deborah Swann and Derek B. Matta, for respondent.



                        MEMORANDUM OPINION


     DAWSON, Judge:   This case was assigned to Chief Special

Trial Judge Peter J. Panuthos pursuant to the provisions of



1
   John L. Green filed an entry of appearance for petitioners
after respondent filed the pending motion but before the hearing
in this matter. Mr. Green did not respond to the pending motion
or otherwise participate in the hearing on this matter.
                                      - 2 -


section 7443A(b)(4) and Rules 180, 181, and 183.2                 The Court

agrees with and adopts the opinion of the Special Trial Judge,

which is set forth below.

                    OPINION OF THE SPECIAL TRIAL JUDGE

       PANUTHOS, Chief Special Trial Judge:           This case is before

the Court on respondent's Motion for Partial Summary Judgment

filed pursuant to Rule 121.          As discussed in greater detail

below, we will grant respondent's motion.

Background

       Respondent determined deficiencies in and additions to

petitioners' Federal income taxes for the years and in the

amounts as follows:

                                        Additions and Penalties
                       Sec.           Sec.           Sec.             Sec.      Sec.
Year   Deficiency   6651(a)(1)   6653(b)(1)(A) 6653(b)(1)(B)       6653(b)(1)   6663

1987    $9,921          ---        $7,441      50% of interest       ---         ---
                                               on underpayment
                                               due to fraud
1988    36,492          ---          ---             ---           $27,369        ---
1989    13,488       $3,364          ---             ---             ---        $10,116
1990    28,619        7,083          ---             ---             ---         21,464
1991    55,391       13,749          ---             ---             ---         41,543
1992    40,029        7,951          ---             ---             ---         30,022
1993    87,539          ---          ---             ---             ---         65,654


       Petitioners invoked the Court's jurisdiction by filing a

timely petition for redetermination.            At the time the petition

was filed, petitioners resided in Houston, Texas.


2
   All section references are to the Internal Revenue Code in
effect for the year in issue, and all Rule references are to the
Tax Court Rules of Practice and Procedure.
                               - 3 -


     Respondent filed an answer to the petition denying all

substantive allegations of fact and error contained in the

petition.   In addition, respondent made affirmative allegations

of fact in support of respondent's determination that petitioners

are liable for additions to tax for fraud.   Specifically,

respondent alleged that petitioners:   (1) Failed to file timely

income tax returns for the years 1987 through 1992; (2) failed to

cooperate with the revenue agent conducting the audit of their

tax liability for 1987 through 1993; (3) failed to maintain

and/or provide respondent with complete and accurate records

concerning their income and expenses; (4) failed to provide the

account numbers or bank names for all accounts that they

maintained during tax years 1987 through 1993; (5) fraudulently

and with the intent to evade the payment of tax understated gross

receipts in the amounts of $84,245.08, $166,894.49, $230,670.52,

$248,756.27, $359,718.81, $292,114.15, and $453,071.47 for tax

years 1987 through 1993, respectively; (6) fraudulently and with

the intent to evade the payment of tax failed to report $3,035

and $1,000 of other income received during tax years 1987 and

1992, respectively; (7) fraudulently and with intent to evade the

payment of tax claimed false net operating loss carry forwards in

the amounts of $19,455, $29,091, $36,439, $38,680, and $99,818 on

their income tax returns for 1988 through 1993, respectively;3



3
   The correct tax years with respect to this allegation are 1988
through 1992.
                               - 4 -


(8) fraudulently and with intent to evade tax understated their

taxable income in the amounts of $54,565, $137,811, $96,049,

$135,050, $284,935, $301,132, and $241,608 for the tax years 1987

through 1993, respectively; and (9) fraudulently understated and

failed to pay their income tax liabilities in the amounts of

$9,921, $36,492, $13,488, $28,619, $55,391, $40,029, and $87,539

for the tax years 1987 through 1993, respectively.

     Petitioners failed to file a reply to respondent's answer

within the time permitted by Rule 37(a).   Respondent moved,

pursuant to Rule 37(c), for entry of an order that the undenied

allegations in the answer be deemed admitted.   The Court gave

petitioners notice of respondent's motion and instructed

petitioners to file a reply as required by Rule 37(a) and (b).

The Court's notice was returned to the Court marked "Unclaimed".

     Petitioners did not respond to respondent's motion.

Accordingly, the Court granted respondent's motion and deemed

admitted the undenied affirmative allegations of fact set forth

in respondent's answer.

     Respondent subsequently filed a Motion for Partial Summary

Judgment.   Respondent contends that the allegations in the answer

that petitioners are deemed to have admitted provide a basis for

entry of partial summary judgment sustaining respondent's

determination that petitioners are liable for additions to tax

for fraud for the years in issue.
                                 - 5 -


     The Court issued an order directing petitioners to file a

response to respondent's Motion for Partial Summary Judgment and

setting the motion for hearing at the Court's motions session in

Washington, D.C.   Petitioners did not file a response to

respondent's motion.   Shortly before the scheduled hearing, John

L. Green filed an entry of appearance for petitioners.

     Counsel for respondent appeared at the hearing and offered

argument in support of respondent's motion.      No appearance was

entered at the hearing by or on petitioners' behalf.

Discussion

     Summary judgment is intended to expedite litigation and

avoid unnecessary and expensive trials.    See Florida Peach Corp.

v. Commissioner, 90 T.C. 678, 681 (1988).       Summary judgment may

be granted with respect to all or any part of the legal issues in

controversy "if the pleadings, answers to interrogatories,

depositions, admissions, and any other acceptable materials,

together with the affidavits, if any, show that there is no

genuine issue as to any material fact and that a decision may be

rendered as a matter of law."    Rule 121(b).    The party opposing

the motion cannot rest upon the allegations or denials in the

pleadings, but must "set forth specific facts showing that there

is a genuine issue for trial."    Rule 121(d).    "The moving party,

however, bears the burden of proving that there is no genuine

issue of material fact, and factual inferences will be read in a
                               - 6 -


manner most favorable to the party opposing summary judgment."

Marshall v. Commissioner, 85 T.C. 267, 271 (1985).

     Respondent determined that petitioners are liable for the

additions to tax for fraud, which requires respondent to

establish, by clear and convincing evidence, that there is an

underpayment of tax and that some portion of that underpayment is

due to fraud.   See sec. 7454(a); Rule 142(b); DiLeo v.

Commissioner, 96 T.C. 858, 873 (1991), affd. 959 F.2d 16 (2d Cir.

1992).

     "Facts deemed admitted pursuant to Rule 37(c) are considered

conclusively established and may be relied upon by the government

even in relation to issues where the government bears the burden

of proof."   Baptiste v. Commissioner, 29 F.3d 1533, 1537 (11th

Cir. 1994), affg. T.C. Memo. 1992-198; see also Doncaster v.

Commissioner, 77 T.C. 334, 336-338 (1981) (holding that deemed

admissions under Rule 37(c) are sufficient to satisfy the

government's burden of proof with respect to the issue of fraud).

     "Fraud is defined as an intentional wrongdoing designed to

evade tax believed to be owing."     Petzoldt v. Commissioner, 92

T.C. 661, 698 (1989).   Fraud will never be presumed.   See Beaver

v. Commissioner, 55 T.C. 85, 92 (1970).    It may, however, be

proved by circumstantial evidence.     See Otsuki v. Commissioner,

53 T.C. 96, 106 (1969).   Courts have relied on a number of

indicia or badges of fraud in deciding whether to sustain the
                               - 7 -


Commissioner's determinations with respect to the additions to

tax for fraud including: (1) Understating income, (2) maintaining

inadequate records, (3) failing to cooperate with tax

authorities, and (4) failing to make estimated tax payments.     See

Recklitis v. Commissioner, 91 T.C. 874, 910 (1988).

     In the instant case, the deemed admissions pursuant to Rule

37(c) include petitioners' admission to a number of indicia of

fraud.   Specifically, petitioners are deemed to have admitted

that they:   (1) Failed to file timely income tax returns for the

years 1987 through 1992; (2) failed to cooperate with the revenue

agent conducting the audit of their tax liability for 1987

through 1993; (3) failed to maintain and/or provide respondent

with complete and accurate records concerning their income and

expenses; (4) failed to provide the account numbers or bank names

for all accounts that they maintained during tax years 1987

through 1993; (5) fraudulently and with the intent to evade the

payment of tax understated gross receipts in the amounts of

$84,245.08, $166,894.49, $230,670.52, $248,756.27, $359,718.81,

$292,114.15, and $453,071.47 for tax years 1987 through 1993,

respectively; (6) fraudulently and with the intent to evade the

payment of tax failed to report $3,035 and $1,000 of other income

received during tax years 1987 and 1992, respectively; (7)

fraudulently and with intent to evade the payment of tax claimed

false net operating loss carry forwards in the amounts of

$19,455, $29,091, $36,439, $38,680, and $99,818 on their income
                                 - 8 -


tax returns for 1988 through 1992, respectively; (8) fraudulently

and with the intent to evade tax understated their taxable income

in the amounts of $54,565, $137,811, $96,049, $135,050, $284,935,

$301,132, and $241,608 for the tax years 1987 through 1993,

respectively; and (9) fraudulently understated and failed to pay

their income tax liabilities in the amounts of $9,921, $36,492,

$13,488, $28,619, $55,391, $40,029, and $87,539 for the tax years

1987 through 1993, respectively.

     Based on the foregoing, we conclude that respondent has

satisfied the burden of proving, by clear and convincing

evidence, that the entire underpayment of tax for each of the

years in issue was due to fraud.    Accordingly, we sustain

respondent's determination that petitioners are liable for

additions to tax for fraud for the years in issue.

     To reflect the foregoing,

                                         An order granting Respondent's

                                 Motion for Partial Summary Judgment

                                 will be issued.
