                         T.C. Memo. 2000-307



                       UNITED STATES TAX COURT


         FRANK A. LUCA AND SHERRY L. LUCA, Petitioners v.
            COMMISSIONER OF INTERNAL REVENUE, Respondent


     Docket No. 15059-97.                Filed September 27, 2000.


     Steven D. Morford, for petitioners.

     Ann M. Welhaf, for respondent.



                         MEMORANDUM OPINION

     VASQUEZ, Judge:    This case is before the Court on

respondent’s motion to dismiss for lack of prosecution.

Respondent determined deficiencies of $124,429 and $266,217 in

petitioners’ Federal income tax for 1993 and 1994, respectively,

and accuracy-related penalties under section 6662(a)1 of $24,886


     1
        Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the years in issue, and
all Rule references are to the Tax Court Rules of Practice and
Procedure.
                                 - 2 -

and $53,243, respectively.2    The determined deficiencies are

largely attributable to respondent’s disallowance of all

deductions claimed by petitioners on Schedule C, Profit or Loss

From Business.3    Respondent disallowed the claimed deductions on

the grounds that the expenses supporting such deductions (1) were

not incurred or (2) if incurred, were not paid for ordinary and

necessary business purposes.

     We shall grant respondent’s motion to dismiss for lack of

prosecution, and we shall enter a decision against petitioners

for the stated deficiencies and penalties.    In light of our

action, we consider it appropriate to explain the events in this

case.

                              Background

        On July 14, 1997, petitioners filed their petition in this

case and requested that the trial be held in Phoenix, Arizona.

In addition to being signed by counsel for petitioners, the

petition was also executed by each petitioner individually.      The

address for petitioners listed therein was 8502 East Sutton

Drive, Scottsdale, Arizona.



        2
        Respondent later revised his determination to reflect
deficiencies in petitioners’ Federal income tax of $121,661 and
$256,860 for 1993 and 1994, respectively, and accuracy-related
penalties of $24,332 and $51,372, respectively.
        3
        Respondent disallowed $314,678 and $424,993 of Schedule
C, Profit or Loss From Business, deductions for taxable years
1993 and 1994, respectively.
                               - 3 -

     Trial was originally scheduled to take place during the

Court’s trial session commencing October 19, 1998.   At the

calendar call for such trial session, counsel for petitioners

submitted an unopposed motion to continue.   Through the motion,

counsel for petitioners represented to the Court that (1)

petitioner Frank A. Luca (Mr. Luca) had been convicted on several

counts of fraud on January 5, 1998, and at the time was serving a

160-month sentence in a Federal facility, (2) the whereabouts of

petitioner Sherry L. Luca (Ms. Luca) were unknown, and attempts

by petitioners’ counsel to contact her had been unsuccessful, and

(3) Mr. Luca’s business records had been seized by the Arizona

Attorney General’s office.   The motion also indicated that there

existed 16 boxes of incomplete and unorganized copies of Mr.

Luca’s business records and further suggested that petitioners

could substantiate the disallowed deductions once Mr. Luca had an

opportunity to review and organize such copies.4   We granted the

motion to continue, and the trial was rescheduled to take place

during the Court’s trial session commencing April 19, 1999.

     On January 4, 1999, petitioners’ counsel filed a motion to

withdraw from the case, citing his continued inability to contact

Ms. Luca and the lack of cooperation on the part of Mr. Luca.



     4
        The motion also stated that Mr. Luca had recently
undergone coronary artery bypass surgery, and that he had
required repeated hospitalization. No documentation of these
facts, however, was provided.
                                - 4 -

The Court ordered each petitioner to respond to counsel’s motion

by February 10, 1999, and served a copy of such order on each

petitioner by certified mail.    The copy of the order sent to Ms.

Luca was returned with the envelope marked “Undeliverable as

Addressed.    Forwarding Order Expired”.5

     Mr. Luca responded to the Court’s order by letter dated

January 21, 1999, in which he informed the Court that he was no

longer married to Ms. Luca and that he had no one to assist him

in locating the documents necessary to substantiate the disputed

deductions.    Mr. Luca requested that the case be postponed until

he was released from prison and was in a position to obtain his

business records.    Accordingly, we treated Mr. Luca’s response as

a motion for continuance.6

     By order of February 26, 1999, the Court denied counsel’s

motion to withdraw without prejudice and granted Mr. Luca’s

motion for continuance insofar as the trial was stricken from the

April 19, 1999, trial calendar.    The order further required Mr.



     5
        This copy was sent to the Scottsdale, Arizona, address
listed for Ms. Luca on the petition.
     6
        Respondent filed a response to Mr. Luca’s motion for
continuance, in which respondent stated that he had no objection
to the motion but requested the Court order Mr. Luca to (1)
“diligently undertake all steps that he can reasonably pursue,
given his incarceration, to secure the documents by March 31,
1999;” (2) keep respondent informed of his efforts; (3) provide
any documents obtained to respondent for review; and (4) provide
a status report to the Court every 4 months until the matter is
resolved.
                               - 5 -

Luca to:

     (1) diligently undertake all steps that he can
     reasonably pursue, given his incarceration, to obtain
     by April 30, 1999, the documents needed to try this
     case or settle it; (2) keep respondent informed about
     the steps he is taking to secure the documents; (3)
     once the documents are secured, make every effort to
     organize them and to deliver them to respondent for
     review; and (4) file a written status report with the
     Court on or before June 25, 1999.

Respondent was also ordered to file a written status report with

the Court by June 25, 1999.

     On April 30, 1999, respondent sent Mr. Luca a letter

reminding him of his obligations under the Court’s order and

requesting that he inform respondent of his efforts to secure the

necessary documentation.   Mr. Luca replied by letter dated May

10, 1999, but his reply merely referenced an attached copy of his

above-described motion for continuance.   Respondent received no

further correspondence from Mr. Luca prior to the due date of the

status reports.

     On June 22, 1999, respondent filed his status report in

which respondent noted his limited correspondence with Mr. Luca

and Mr. Luca’s apparent lack of success in obtaining the

necessary documentation.   Respondent further requested that the

case be placed on the calendar for the next trial session and

that petitioners not be given any further continuances.    Mr. Luca

failed to file the status report required of him.   The Court then

ordered the case to be restored to the general docket for trial,
                               - 6 -

and the case was rescheduled for the Court’s June 5, 2000, trial

session.

     On May 31, 2000, petitioners’ counsel filed another motion

to continue.   In addition to reciting information contained in

previous motions, this motion provided that new information

regarding the whereabouts of Ms. Luca had been obtained and that

an effort to contact her was underway.   The motion was calendared

for hearing on June 5, 2000.   Prior to such hearing, respondent

filed a motion to dismiss for lack of prosecution.

     At the hearing on the respective motions, the Court was

notified that both petitioners’ counsel and respondent had

attempted to contact Ms. Luca at addresses different from the

Scottsdale, Arizona, address listed on the petition.   Counsel for

petitioners had unsuccessfully attempted to contact Ms. Luca at

2101 West Warm Springs Road, Apartment 3216, Henderson, Nevada,

89014 (Warm Springs address), the address listed for her on

petitioners’ divorce decree.   Respondent had unsuccessfully

attempted to contact Ms. Luca at 1457 Harmony Hills Drive,

Henderson, Nevada, 89014 (Harmony Hills address), her last known

address of record with respondent.

     In addition to the addresses described above, the existence

of a third potential address for Ms. Luca was mentioned at the

hearing.   Counsel for petitioners informed the Court that he had

received a phone message from Mr. Luca in which Mr. Luca claimed
                              - 7 -

to have a new address for his former spouse, who (according to

Mr. Luca) had remarried and taken the last name of “London”.7

While Mr. Luca did not provide such address on the phone

message,8 petitioners’ counsel stated that he expected to have

such address within a week and that he would provide it to the

Court and respondent at that time.

     In addition to information regarding potential addresses for

Ms. Luca, counsel for petitioners further represented to the

Court that (1) Ms. Luca at one point had possession of the 16

boxes of copied business records, (2) Mr. Luca had been informed

by his attorney in the divorce proceeding that Ms. Luca had

destroyed such copies, and (3) the records pertaining to Mr.

Luca’s business (originally seized by the Arizona Attorney

General’s office) allegedly had been turned over to Federal

prosecutors.

     At the conclusion of the hearing, the Court continued the

case and took respondent’s motion to dismiss under advisement.

The Court also ordered respondent to serve the motion to dismiss

on Ms. Luca using the Warm Springs address.   This attempted

service by certified mail was returned to respondent as

undeliverable with a notation of “Forwarding Order Expired”.


     7
        Petitioners’ counsel was unsure of whether Ms. Luca’s new
last name was spelled “London” or “Londen”.
     8
        Petitioners’ counsel indicated that this failure was due
to the time constraints imposed by his answering machine.
                               - 8 -

     On June 27, 2000, the Court ordered petitioners’ counsel,

Mr. Luca, and Ms. Luca each to file a response to respondent’s

motion to dismiss on or before July 18, 2000.    The Court further

required that a copy of such order be served on Mr. Luca, using

his address at the Federal prison facility, and on Ms. Luca,

using both the Harmony Hills and Warm Springs addresses.      Both

copies of the order sent to Ms. Luca were returned as

undeliverable.9   Neither Mr. Luca, Ms. Luca, nor petitioners’

counsel filed the required response to the motion to dismiss.

Furthermore, the Court was never provided with details of the

third potential address for Ms. Luca to which counsel for

petitioners alluded at the hearing.

                            Discussion

     Respondent’s deficiency determinations are entitled to a

presumption of correctness, and the burden is on petitioners to

prove that the determinations are erroneous.    See Rule 142(a);

Welch v. Helvering, 290 U.S. 111, 115 (1933).    Similarly,

petitioners carry the burden of proving that they are not liable

for the section 6662(a) accuracy-related penalties at issue.      See

Rule 142(a); Compaq Computer Corp. v. Commissioner, 113 T.C. 214,

226 (1999).

     Rule 123(b) provides for dismissal of a case when a taxpayer


     9
        The copy sent to the Harmony Hills address was marked
“Unclaimed”, while the copy sent to the Warm Springs address was
marked “Forwarding Order Expired”.
                               - 9 -

fails properly to prosecute his or her case, fails to comply with

the Court’s Rules or any order of the Court, or for other cause

which the Court deems sufficient.      Dismissal of a case is a

sanction resting in the discretion of the trial court.     See Levy

v. Commissioner, 87 T.C. 794, 803 (1986).     In determining whether

dismissal under Rule 123(b) is appropriate, the Court must

balance two potentially rival considerations:     “the policy in

favor of having cases heard on their merits with the policy in

favor of avoiding harassment to the defending party arising from

unjustifiable delay.”   Freedson v. Commissioner, 67 T.C. 931, 935

(1977), affd. 565 F.2d 954 (5th Cir. 1978).     Given the varied

circumstances faced by petitioners in this case and their

subsequent divorce, we analyze the motion to dismiss separately

with respect to each.

Motion To Dismiss as to Petitioner Sherry L. Luca

     The balance of the considerations in this case inclines

against Ms. Luca.   Having executed the petition which commenced

this proceeding, she was clearly aware of the existence of the

present litigation.   Signing the petition, however, appears to

have been Ms. Luca’s only effort to prosecute the matter.

Although represented by counsel, Ms. Luca not only failed to

provide her counsel with information necessary for him to

prosecute the case on her behalf; she failed to correspond with

him whatsoever.   She further neglected to provide her counsel
                              - 10 -

with an updated address at which she could be reached.    Based on

the record before us, we are satisfied that Ms. Luca has no

intention of prosecuting this case.    We shall therefore grant

respondent’s motion to dismiss as to her.

Motion To Dismiss as to Petitioner Frank A. Luca

     The balancing of considerations with respect to Mr. Luca is

admittedly more difficult.   Mr. Luca has been incarcerated during

the principal part of the litigation herein, and records

necessary for him to substantiate the deductions at issue are

allegedly in the custody of prosecutorial authorities.    We note,

however, that incarceration does not alleviate the taxpayer of

his or her burden of prosecuting a case before this Court.    See

Gray v. Commissioner, T.C. Memo. 1989-666; Taylor v.

Commissioner, T.C. Memo. 1989-186; Amato v. Commissioner, T.C.

Memo. 1977-305.

     The Court has been cognizant of Mr. Luca’s predicament, as

evidenced by the continuances that have been granted thus far.

Nonetheless, the Court has made it clear that it is not willing

to continue the case indefinitely.     Rather, we have ordered Mr.

Luca to “diligently undertake all steps that he can reasonably

pursue, given his incarceration,” to obtain the documents

necessary to try or settle the case, and to report to the Court

regarding his efforts.   Given that Mr. Luca has demonstrated his

ability to communicate in writing with the Court and respondent,
                                - 11 -

at a minimum we would have expected Mr. Luca to provide us with

copies of correspondence to authorities allegedly in possession

of his business records.     Instead, Mr. Luca failed to file the

required status report, and we have no indication that Mr. Luca

has undertaken any efforts to obtain the documentation necessary

to support his case.     In addition, Mr. Luca failed to comply with

our order that he respond to the motion to dismiss presently

before us.

     While a taxpayer has an interest in having his or her case

heard on the merits, the Commissioner has the right to obtain

judicial resolution of tax disputes within a reasonable period of

time.     See Freedson v. Commissioner, supra at 935.   As this case

heads into its fourth year before the Court, respondent’s

interest in obtaining a resolution of the tax liabilities at

issue becomes increasingly compelling.

        In balancing the interests of Mr. Luca against those of

respondent, we find that the considerations in this case favor

respondent.     Simply put, Mr. Luca has not provided the Court with

any indication that he intends to move this case forward in the

foreseeable future.     The remedy of dismissal is admittedly harsh,

but we see no alternative that will adequately protect the

interests of respondent.     “Although a court must explore

meaningful alternatives prior to dismissing a case, it need not

always exhaust every sanction short of dismissal before final
                              - 12 -

action.”   Edelson v. Commissioner, 829 F.2d 828, 831 (9th Cir.

1987), affg. T.C. Memo. 1986-223.    Accordingly, we shall grant

respondent’s motion to dismiss as to Mr. Luca as well.

     To reflect the foregoing,

                                      An appropriate order of

                                 dismissal and decision will be

                                 entered.
