                         T.C. Memo. 2000-280



                       UNITED STATES TAX COURT


         JOSEPH J. AND EILEEN H. LIPARI, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent


     Docket No. 18650-97.                      Filed August 30, 2000.


     Joseph J. Lipari and Eileen H. Lipari, pro sese.

     Richard A. Rappazzo, for respondent.



                         MEMORANDUM OPINION

     VASQUEZ, Judge:    Respondent determined a deficiency of

$44,011 in petitioners’ 1993 Federal income tax and a $8,802

accuracy-related penalty under section 6662(a).1     After

petitioners failed to appear when their case was called for

trial, the Court orally granted respondent’s motion to dismiss



     1
        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.
                               - 2 -

for lack of prosecution.   The sole matter for decision is

respondent’s motion for imposition of a section 6673 penalty.

                            Background

     At the time the petition was filed, Joseph J. Lipari and

Eileen H. Lipari resided in Cottonwood, Arizona.

     Petitioners have admitted that, during 1993, Mr. Lipari

performed services as a chiropractor.    Nonetheless, petitioners

failed to report a large percentage of the income from such

activity on their 1993 income tax return.   Petitioners claimed

that such income was earned by and taxable to an entity called

D.D. Trust (the Trust).2   Respondent determined that the income

reported by the Trust is properly taxable to Mr. Lipari

individually on the grounds that the Trust is a sham (i.e., lacks

economic substance) that should be disregarded for tax purposes.

Respondent alleged alternatively that, if the Trust were

respected for tax purposes, the Trust constitutes a grantor trust

whose income is taxable to petitioners.

Discovery for October 1998 Trial

     This case was originally calendared for the Court’s trial

session in Phoenix, Arizona on October 19, 1998.   In preparation

for trial and as required by Rule 70(a), respondent first


     2
        Although petitioners alleged that they enjoyed no
interest in property which was transferred to the Trust,
petitioners admitted to receiving a life tenancy to all property
owned by the Trust and further to having use of the real and
personal property owned by the Trust.
                                - 3 -

attempted to obtain information regarding the Trust through

informal discovery requests.   This attempt was unsuccessful.   On

July 7, 1998, respondent proceeded with formal discovery, serving

on petitioners Respondent’s Request for Production of Documents

and Respondent’s Interrogatories to Petitioners.

     Petitioners produced none of the documents requested by

respondent.   Instead, petitioners submitted a response in which

they claimed to be unable to produce the requested documents on

the grounds that the documents were in the “exclusive possession

and control of Jimmy C. Chisum, Managing Agent for D & E Sword

Trustee Co., Trustee for D.D. Trust.”3   On August 17, 1998,

respondent filed with the Court a Motion to Compel Production of

Documents.    On August 19, 1998, the Court ordered petitioners to

produce the requested documents by September 9, 1998.

Petitioners failed to respond to this order.   On September 15,

1998, the Court granted respondent’s motion to compel and ordered

that petitioners would not be allowed to offer into evidence any



     3
        Petitioners contended that Mr. Chisum refused to provide
them with records of the Trust. This assertion, however, is
difficult to reconcile with petitioners’ admission that Mr.
Chisum had become a “good friend” in the years since inception of
the Trust and that the parties met “quite regularly.”

     In addition, petitioners’ difficulty in obtaining documents
from the trustee appears to have been selective. As an exhibit
to Petitioners’ Response to Motion for Date and Time Certain for
Trial filed with the Court on October 5, 1998, petitioners
attached a copy of a notice of deficiency issued to the Trust for
the taxable year at issue.
                                - 4 -

documents not produced to respondent by October 2, 1998.    Once

again, petitioners failed to produce any documents in response to

this order.

     In addition to not producing the documents requested by

respondent, petitioners also failed to answer respondent’s

interrogatories.    On September 3, 1998, respondent filed a Motion

to Compel Responses to Respondent’s Interrogatories.   On

September 8, 1998, the Court ordered petitioners to respond to

the interrogatories by September 25, 1998, and further ordered

respondent to file a status report as to petitioners’ response by

September 29, 1998.   On September 21, 1998, petitioners provided

their answers to respondent’s interrogatories.   After receiving

respondent’s status report, the Court reviewed petitioners’

answers.   By order of October 7, 1998, the Court determined that

answers to 15 of the interrogatories were inadequate and ordered

that petitioners would not be allowed to offer into evidence

answers to such interrogatories.

Petitioners’ Bankruptcy

     On October 19, 1998, at the calendar call for the trial

session in which this case was originally to be heard,

petitioners appeared with a Notice of Proceeding in Bankruptcy

reflecting that petitioners had filed a bankruptcy petition

earlier that day.   In accordance with relevant provisions of the

Bankruptcy Code, all proceedings were ordered automatically
                                - 5 -

stayed.

     On October 4, 1999, petitioners’ bankruptcy case was

dismissed with prejudice.   The stay of proceedings in this case

was thereafter lifted, and the case was rescheduled for trial

during the Court’s June 5, 2000, trial session.

Discovery for June 2000 Trial

     Confronted with petitioners’ refusal to work toward a

stipulation of facts, respondent filed a Motion to Show Cause Why

Proposed Facts in Evidence Should Not Be Accepted as Established

on February 7, 2000.   On February 8, 2000, the Court issued an

Order to Show Cause Under Rule 91(f), requiring petitioners to

respond as to why matters set forth in respondent’s motion should

not be deemed admitted.   Petitioners filed a response on February

19, 2000, but such response failed to address the proposed

stipulations.

     On March 3, 2000, respondent proceeded with a second attempt

at formal discovery, serving on petitioners Respondent’s Second

Set of Interrogatories, Respondent’s Second Request for

Production of Documents, and Respondent’s Requests for Admission.

Petitioners addressed these discovery requests in much the same

manner as previous ones, prompting respondent again to seek the

assistance of this Court in obtaining discovery.   On

April 14, 2000, respondent filed a Motion to Compel Responses to

Respondent’s Second Request for Production of Documents.    On
                               - 6 -

April 20, 2000, respondent filed a Motion to Compel Responses to

Respondent’s Second Set of Interrogatories.   On the same date,

respondent filed a Motion to Review the Sufficiency of

Petitioners’ Response to Respondent’s Requests for Admission.4

     The Court granted each of respondent’s above-described

motions.   On April 20 and 21, 2000, the Court ordered

petitioners, on or before May 1, 2000, to (1) produce to

respondent each and every document requested in respondent’s

second request for production of documents, (2) provide

respondent with full, complete, and responsive answers to each

and every interrogatory in respondent’s second set of

interrogatories, and (3) provide respondent with complete answers

to the requested admissions.   At that time, the Court also made

absolute its Order to Show Cause Under Rule 91(f), providing that

the facts and evidence set forth in respondent’s proposed

stipulation of facts were deemed established.

     On May 8, 2000, following petitioners’ failure to comply

with the above-described orders,5 respondent filed a Motion to


     4
        The requested admissions at issue (those for which
respondent sought Court review of petitioners’ responses)
consisted of certain statements made by Mr. Lipari under oath
during a hearing in the course of petitioners’ bankruptcy case.
Mr. Lipari objected to the requested admissions on the grounds
that he was unable to recall the detail of his prior testimony.
     5
        Petitioners’ only correspondence with the Court during
this time period consisted of a Motion for Enlargement of Time
filed on May 8, 2000, and a Motion to Dismiss filed on May 9,
2000. Both motions were denied.
                                 - 7 -

Impose Sanctions.   By order of May 16, 2000, the Court granted

the motion and prohibited petitioners from offering into evidence

(1) any facts which petitioners should have provided in response

to respondent’s second set of interrogatories, and (2) any

documents covered by respondent’s second request for production

of documents which petitioners had failed to produce.      This order

further provided that the admissions for which respondent sought

review of petitioners’ responses were deemed admitted.

June 2000 Trial Session

     The trial in this case was rescheduled for a date and time

certain of June 5, 2000, at 2 p.m.       At the calendar call for the

trial session held on the morning of June 5, respondent filed a

Motion to Dismiss for Lack of Prosecution and a Motion for

Penalty Under I.R.C. Section 6673(a)(1).      Not only were

petitioners absent at the trial session calendar call,

petitioners also failed to appear when their case was called for

trial later that day.   After noting petitioners’ absence when

their case was called for trial, the Court orally granted

respondent’s motion to dismiss for lack of prosecution.       The

Court then took respondent’s motion for imposition of a section

6673 penalty under advisement.

                            Discussion

     Section 6673(a)(1) authorizes this Court to penalize a

taxpayer who institutes or maintains a proceeding primarily for
                                 - 8 -

delay.   Petitioners’ conduct in this case has convinced us that

delay was in fact the primary purpose behind this proceeding.

Petitioners’ repeated failure to comply with respondent’s

discovery requests, even in the face of orders from the Court

directing them to do so, has resulted in a waste of limited

judicial and administrative resources that could have been

devoted to resolving bona fide claims of other taxpayers.       See

Cook v. Spillman, 806 F.2d 948 (9th Cir. 1986).       Accordingly, we

shall grant respondent’s motion and require petitioners to pay a

penalty to the United States pursuant to section 6673 in the

amount of $12,500.

     To reflect the foregoing,

                                         An appropriate order and order

                                 of dismissal and decision shall be

                                 entered.
