                                 T.C. Memo. 1999-71



                               UNITED STATES TAX COURT



            ASHOK C. SHAH AND JYOTI A. SHAH, Petitioners v.
              COMMISSIONER OF INTERNAL REVENUE, Respondent



       Docket No. 8159-97.                                  Filed March 9, 1999.



       Ashok C. and Jyoti A. Shah, pro sese.

       Eric Skinner, for respondent.



                    MEMORANDUM FINDINGS OF FACT AND OPINION


       FOLEY, Judge:          By notice dated March 20, 1997, respondent

determined the following deficiency, additions to tax, and

penalty relating to petitioners' Federal income taxes:
                                          Additions to Tax
Year   Deficiency     Sec. 6653(b)   Sec. 6653(b)(1)(A) Sec. 6653(b)(1)(B)   Sec. 6663
                                                               1
1987    $4,097           --               $13,676                                --
1988      --           $12,849               --                --                --
                                       - 2 -
1989        --           --                --                 --            $11,746


1
    Fifty percent of the statutory interest on $18,234, computed from Apr. 15, 1988, to
    the earlier of the date of assessment or the date of payment.



All section references are to the Internal Revenue Code in effect

for the years in issue.

       The issues for decision are as follows:

       1.    Whether petitioners failed to report capital gain and

rental income and overstated depreciation expenses and charitable

contributions.         We hold that they did.

       2.    Whether petitioners are liable for section 6653

additions to tax, and a section 6663 penalty, for fraud.                    We hold

that they are.

                                FINDINGS OF FACT

       Petitioners, husband and wife, resided in Kalamazoo,

Michigan, at the time their petition was filed.                    During the years

in issue, Mr. Shah worked as a scientist, and Mrs. Shah as a

research biochemist, for The Upjohn Company (Upjohn).                   Upjohn

provided petitioners with medical insurance and reimbursed

petitioners' employee business expenses.

       Petitioners were involved in real estate activities.                  They

jointly owned and managed two rental properties.                   Petitioners

also owned a vacant lot, which they purchased in 1984 for

$16,000.         Petitioners, in 1986, sold the lot on an installment

basis for $26,000 and, in 1987, received a $17,693 payment.
                              - 3 -

They, however, did not report this payment on their 1987 tax

return.

     In 1990, respondent audited petitioners' 1987 Federal income

tax return.   During their initial meeting with an Internal

Revenue Service (IRS) auditor, petitioners submitted records,

canceled checks, and receipts.   Some of the receipts related to

medical and employee expenses for which petitioners previously

had been reimbursed.   At the next meeting, pursuant to the

auditor's request, petitioners submitted their 1988 and 1989

records.   The auditor asked petitioners whether they had altered

certain checks relating to 1987, 1988, and 1989.   Petitioners

admitted that they had altered these documents.    Respondent then

initiated a criminal investigation of petitioners.   In October

1992, after being notified of the criminal investigation,

petitioners amended their 1987, 1988, and 1989 Federal tax

returns.   Petitioners' numerous adjustments resulted in

additional reported taxable income of $46,969, $58,018, and

$55,735 for 1987, 1988, and 1989, respectively.

     In April 1994, petitioners were charged, pursuant to section

7201, with evading income tax.   On November 1, 1994, Mr. Shah

pleaded guilty to tax evasion relating to 1989, was sentenced to

13 months in prison, and was ordered to pay a $100,000 fine and

$48,626 in restitution.   Mrs. Shah pleaded nolo contendere to

providing the IRS with fraudulent information, was placed on 2

years probation, and was ordered to pay a $50,000 fine.
                                - 4 -

                                OPINION

     For the reasons set forth below, we sustain all of

respondent's determinations.

     Respondent determined that petitioners, on their 1987 tax

return, failed to report $4,838 of capital gain and $2,100 of

rental income, erroneously claimed a depreciation deduction

relating to an automobile, and overstated deductions for

charitable contributions and depreciation relating to rental

property.    Petitioners bear the burden of proof, see Welch v.

Helvering, 290 U.S. 111, 115 (1933), yet have failed to establish

that respondent's determinations are incorrect.

     Respondent also determined that petitioners, pursuant to

sections 6653(b)(1)(A) and (B), 6653(b), and 6663, are liable for

additions to tax, and a penalty, for fraud.    To prove fraud,

respondent must establish, by clear and convincing evidence, that

for each year in issue an underpayment of tax exists and that

some portion of the underpayment is due to fraud.    See Petzoldt

v. Commissioner, 92 T.C. 661, 699 (1989).

     Respondent has established that, for each year in issue,

petitioners' underpayment of tax was fraudulent.    Each of

petitioners' amended returns is an admission of a tax

underpayment.    See Badaracco v. Commissioner, 464 U.S. 386, 399

(1984).     In addition, petitioners' actions warrant an inference

of fraud.     Petitioners intentionally understated their income and

overstated their deductions.    As a result, in 1987, 1988, and
                              - 5 -

1989, petitioners underreported substantial amounts of taxable

income (i.e., more than $50,000 each year).    See Holland v.

Commissioner, 348 U.S. 121, 139 (1954) (holding that a pattern of

consistently and substantially underreporting income may justify

an inference of fraud).   We also note that petitioners, after

being informed of the audit, persisted in their attempt to

conceal income by submitting to the IRS altered documents and

documents relating to expenses for which petitioners previously

had been reimbursed.   See Rowlee v. Commissioner, 80 T.C. 1111,

1123 (1983) (stating that a taxpayer's attempts to conceal

income, mislead the IRS, or prevent the collection of income tax

may establish the requisite fraudulent intent).

     Petitioners made numerous other contentions (i.e., right to

a refund, relief from joint and several liability, res judicata,

collateral estoppel, and several violations of the United States

Constitution).   We conclude that these contentions are meritless

or irrelevant.

     To reflect the foregoing,

                                         Decision will be entered

                                      for respondent.
