                         T.C. Memo. 1997-269



                       UNITED STATES TAX COURT



                  TERRY ALAN SIMMONS, Petitioner v.
            COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 6857-94.                         Filed June 16, 1997.



            Terry Alan Simmons, pro se.

            Cynthia J. Olson, for respondent.



               MEMORANDUM FINDINGS OF FACT AND OPINION


     JACOBS, Judge:     Respondent    determined     deficiencies in

petitioner's Federal income taxes and additions to tax as follows:

                                          Addition to Tax
     Year             Deficiency            Sec. 6651(f)

     1990              $5,850                    $3,304
     1991               6,197                     4,300
     1992               6,640                     3,551
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        The issues for decision are:

        (1)   Whether petitioner had unreported income for each of the

years under consideration (namely, 1990, 1991, and 1992), as

determined       by   respondent.      In    respondent's   posttrial     brief,

respondent concedes a portion of the taxable income determined in

the notice of deficiency.           We hold that petitioner had unreported

income for each year under consideration in the amount determined

by respondent after concession, discussed infra.

        (2)   Whether petitioner's failure to file Federal income tax

returns for each of the years under consideration was due to fraud.

We hold that it was.

        (3)   Whether petitioner should be required to pay a penalty to

the United States under section 6673(a)(1).                 We hold that he

should, in the amount of $5,000.

     All section references are to the Internal Revenue Code in

effect for the years under consideration.             All Rule references are

to the Tax Court Rules of Practice and Procedure. All dollar

amounts are rounded.

                                 FINDINGS OF FACT

     Petitioner resided in Boise, Idaho, at the time he filed his

petition.      He did not file a Federal income tax return for any of

the years under consideration.

     Petitioner had been employed by the city of Boise (the City)

since    1977.    During   the    years     under   consideration,   he   was   a
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subdivision review analyst in the City's Public Works Department,

receiving wages from the City as follows:

                 1990             $28,515

                 1991             $28,481

                 1992             $30,382

During the years under consideration, petitioner was married to

Betty A. Simmons (Mrs. Simmons).      Mrs. Simmons was employed by CPC

Intermountain Hospital (the hospital) throughout 1990, 1991, and

1992, and received wages from the hospital as follows:

                 1990             $ 9,330

                 1991             $13,081

                 1992             $13,911

     Prior to 1990, petitioner and Mrs. Simmons had filed joint

income tax returns. By 1990, petitioner had become a tax protester

and adopted tactics designed to evade the payment of tax and harass

those whom he thought were interfering with his scheme.          The first

thing petitioner did was to drop out of the commercial banking

system, and thereafter he dealt primarily in cash.                Then he

attempted to stop withholding on his paychecks by filing false

Forms W-4.     Specifically, on April 16, 1991, he filed a Form W-4

with the City claiming 30 allowances; prior thereto, he had claimed

5 allowances that resulted in withholding close to his actual tax

liability.     Upon receipt of this Form W-4, the City notified the

Internal Revenue Service (IRS) in accordance with a regulatory

requirement.      The   IRS   responded   to   the   City's   notification
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directing the City to withhold at single taxpayer rates with no

allowances until a new Form W-4 was filed with a reasonable number

of   allowances     claimed.   The     City   complied    with   the     IRS'

instructions.

     On March 16, 1992, petitioner filed a Form W-4 with the City

claiming 31 allowances.     After the City did not honor this new Form

W-4, petitioner filed bogus liens against various city employees

(including the City payroll clerk) and IRS employees.              He also

filed a lawsuit against the City and the payroll clerk.           The City

defended the lawsuit; the liens were expunged, and a judgment was

entered against petitioner.

     In December 1992, petitioner and Mrs. Simmons executed a

declaration of trust purporting to convey their personal residence

to themselves as trustees for the benefit of their children.

     This case previously had been calendared for trial at the

session in Boise beginning on May 22, 1995.              On May 19, 1995,

petitioner    and   Mrs.   Simmons    filed   a   voluntary   petition    for

bankruptcy under chapter 13, thus halting the proceedings in this

case.     Petitioner and Mrs. Simmons did nothing to prosecute the

bankruptcy case, and that case was dismissed for failure to file a

plan and failure to file tax returns.

        On March 6, 1995, respondent filed a motion for an award of a

penalty under section 6673.     On March 29, 1995, petitioner filed a

document entitled "Administration Law Demand for Dismissal of

Notice of Deficiency by the Commissioner of the Internal Revenue".
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In response, the Court issued an Order, dated March 30, 1995, in

which we characterized petitioner's arguments as frivolous and

admonished       petitioner     that   if   he    continued    to    advance   such

frivolous legal arguments, we would consider imposing a penalty

under section 6673.        At the trial of this case, on June 10, 1996,

petitioner continued the same tax protester arguments he had been

warned to abandon.

      In   the    notice   of    deficiency,      respondent      determined   that

petitioner was liable for tax on all the wage income he received

from the City and on 50 percent of the wage income Mrs. Simmons

received from the hospital.            Respondent also determined additions

to   tax    under    section     6651(f)    for    the    years     in   issue.   In

respondent's posttrial brief, respondent conceded that petitioner's

and Mrs. Simmons' wages were community income, and thus petitioner

was liable for tax on only 50 percent of the income he received

from the City, and 50 percent of the income Mrs. Simmons received

from the hospital.

                                       OPINION

Issue 1.    Unreported Income

     The uncontroverted evidence in this case establishes that

petitioner and Mrs. Simmons had unreported wage income during each

of the years under consideration as follows:

                    Petitioner                      Mrs. Simmons

     1990            $28,515                          $ 9,330

     1991             28,481                             13,081
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      1992          30,382                           13,911

      Idaho is a community property State. Absent circumstances not

shown here, petitioner is liable for tax on 50 percent of the wage

income received from the City and 50 percent of the wage income

Mrs. Simmons received from the hospital. See United States v.

Mitchell, 403 U.S. 190 (1971).

Issue 2.     Section 6651(f) Additions to Tax

      Section 6651 imposes an addition to tax for failure to file a

tax return.    Where the failure to file is fraudulent, the addition

to tax is 15 percent of the amount required to be shown on the

return for each month beyond the return's due date, up to a maximum

of 75 percent.      (If the failure to file is not fraudulent and is

not due to reasonable cause, the addition to tax is 5 percent of

the amount required to be shown on the return for each month that

the   return   is   not   filed,   up   to   a   maximum   of   25   percent.)

Respondent bears the burden of proving by clear and convincing

evidence that the failure to file was fraudulent.               Sec. 7454(a);

Rule 142(b); Clayton v. Commissioner, 102 T.C. 632, 652-653 (1994).

Respondent's burden is met if it is shown that petitioner intended

to evade taxes known to be due and owing by conduct intended to

conceal, mislead, or otherwise prevent the collection of taxes, and

that there is an underpayment of tax.            Stoltzfus v. United States,

398 F.2d 1002, 1004 (3d Cir. 1968); Rowlee v. Commissioner, 80 T.C.

1111, 1123 (1983); Acker v. Commissioner, 26 T.C. 107, 112 (1956).
                                  - 7 -

     The existence of fraud is a question of fact to be resolved

upon consideration of the entire record. DiLeo v. Commissioner, 96

T.C. 858, 874 (1991), affd. 959 F.2d 16 (2d Cir. 1992).            Fraud is

never presumed but, rather, must be established by affirmative

evidence. Edelson v. Commissioner, 829 F.2d 828, 832-833 (9th Cir.

1987), affg. T.C. Memo. 1986-223. Direct evidence of the requisite

fraudulent intent is seldom available, but fraud may be proved by

circumstantial evidence. Spies v. United States, 317 U.S. 492, 499

(1943); Rowlee v. Commissioner, supra at 1123. The taxpayer's

entire course of conduct may establish the requisite intent.

Otsuki v. Commissioner, 53 T.C. 96, 105-106 (1969).

     Over the years, courts have identified various factors from

which fraudulent intent can be inferred.        These include:      Failure

to file a return for several consecutive years; failure to report

substantial income; dealing in cash to avoid financial scrutiny;

filing a false Form W-4; and failure to cooperate with the taxing

authorities.    Bradford v. Commissioner, 796 F.2d 303, 307-308 (9th

Cir. 1986), affg. T.C. Memo. 1984-601.      These factors are present

in this case.

     We   observed   petitioner   at   trial.    He   is   an   intelligent

individual who was continuously employed in a responsible position.

We are convinced that he was aware of his obligation to report his

income and file income tax returns, but he deliberately chose not

to do so.   We recognize that failure to file a tax return itself

does not establish fraud, but combined with affirmative acts, it
                                             - 8 -

will       be   sufficient       to    prove     fraud.    See    Habersham-Bey   v.

Commissioner, 78 T.C. 304 (1982).                    Here, the evidence shows that

petitioner engaged in affirmative acts to misrepresent, secrete,

and attempt to deceive in order to evade taxes known by him to be

due and owing to the Government.                     He intentionally filed false

Forms W-4 to prevent the collection of taxes. He dealt primarily in

cash to avoid financial scrutiny.                     And he tried to remove his

assets from the reach of the IRS by executing a declaration of

trust with his wife purporting to convey their personal residence

to themselves as trustees for the benefit of their children.

       Respondent has proven by clear and convincing evidence that

petitioner's failure to file returns for each of the years under

consideration was fraudulent. Accordingly, we hold that petitioner

is liable for the section 6651(f) additions to tax for 1990, 1991,

and 1992.

Issue 3.        Section 6673(a)(1) Penalty

       In relevant part, section 6673(a)(1) provides:

                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

       *          *          *           *            *       *        *
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     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      presented   frivolous     and   groundless   arguments

throughout these proceedings.      We admonished petitioner that if he

continued to advance such arguments, we would consider imposing a

penalty under section 6673(a)(1).       He did not heed our warning.

     We   find    that   petitioner,   in    addition   to   maintaining   a

frivolous and groundless position, instituted and maintained this

proceeding primarily for delay.             He had ample opportunity to

address the merits of respondent's determination, but he chose not

to do so. See Coleman v. Commissioner, 791 F.2d 68, 71 (7th Cir.

1986); see also Neitzke v. Williams, 490 U.S. 319 (1989) (defining

legal frivolousness).       Petitioner's insistence on pursuing his

fruitless argument has consumed time and effort of this Court (and

of respondent) that could have otherwise 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 for an award of a penalty under section 6673 and require

petitioner to pay a penalty to the United States in the amount of

$5,000.

     We have considered all arguments made by petitioner in this

proceeding.      We perceive no need to refute petitioner's protester

arguments with somber reasoning; to do so might suggest they have
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colorable merit.   See Crain v. Commissioner, 737 F.2d 1417 (5th

Cir. 1984).   Suffice it to say, all of them are without merit.

     To reflect the foregoing and respondent's concession,



                                    An appropriate order will be

                               issued,   and   a   decision   will   be

                               entered under Rule 155.
