                         T.C. Memo. 2011-279



                       UNITED STATES TAX COURT



             CITY WIDE TRANSIT, INC., Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 406-09L.                 Filed November 23, 2011.



     Gary D. Hoppe and Herbert C. Kantor, for petitioner.

     Marc L. Caine, for respondent.



                         MEMORANDUM OPINION


     VASQUEZ, Judge:    Pursuant to section 6330(d)(1),1 petitioner

seeks review of respondent’s determination to proceed with a

proposed levy to collect its outstanding employment tax



     1
        Unless otherwise indicated, all section references are to
the Internal Revenue Code (Code), and all Rule references are to
the Tax Court Rules of Practice and Procedure.
                                   - 2 -

liabilities for the taxable periods ending June 30, 1997;

December 31, 1998; March 31, June 30, and December 31, 1999; and

March 31 and June 30, 2000 (collectively, the periods at issue).

The issue is whether the statute of limitations barred the

assessments of petitioner’s additional employment taxes for the

periods at issue.

                                Background

       The parties submitted this case fully stipulated under Rule

122.       The stipulations of facts and the attached exhibits are

incorporated herein by this reference.       Petitioner’s principal

place of business was in New York at the time the petition was

filed.

       Petitioner transports handicapped children throughout New

York City on school buses operating under a contract with the New

York City Office of Pupil Transportation.       Ray Fouche (Ms.

Fouche) is petitioner’s president and sole shareholder.

       Ms. Fouche hired Brand’s Paycheck, Inc. (the payroll

company), to prepare petitioner’s Forms 941, Employer’s Quarterly

Federal Tax Return,2 for all relevant periods.


       2
        Employers are liable for deducting and withholding from
their employees’ salaries or wages the employees’ shares of
Federal income and Federal Insurance Contributions Act (FICA)
taxes. Secs. 3102(a), 3402(a), 3403. The withheld Federal
income and FICA taxes are reported quarterly on Form 941. Secs.
31.6011(a)-1(a)(1), 31.6011(a)-4(a)(1), Employment Tax Regs.

       During the relevant periods employers also reported on Form
                                                     (continued...)
                                - 3 -

     In 1998 or 1999 Ms. Fouche, on behalf of petitioner,

retained Manzoor Beg (Mr. Beg), an accountant,3 for the sole

purpose of negotiating with respondent a reduction in

petitioner’s outstanding employment tax liabilities for periods

unrelated to those at issue.4   As requested by Mr. Beg, Ms.

Fouche signed a blank power of attorney form and gave it to him.5

Ms. Fouche never requested that Mr. Beg prepare any of

petitioner’s Forms 941.

Mr. Beg’s “False Quarterly Return Scheme”

     A.   Forms 941 for the Original Covered Periods

     The payroll company prepared petitioner’s returns for the

periods ending March 31, June 30, and December 31, 1999; and

March 31 and June 30, 2000 (original covered periods), and


     2
      (...continued)
941 advance earned income credit (EIC) payments made to
employees. Eligible individuals could elect to receive part of
the EIC in their regular pay by filing with their employers Form
W-5, Earned Income Credit Advance Payment Certificate. Employers
reduced their employment tax owed by the amount of advance EIC
payments made to employees. See sec. 3507.
     3
        Mr. Beg was not a certified public accountant, although
he told Ms. Fouche that he was.
     4
        In addition to petitioner, Ms. Fouche owned a number of
other bus companies that had outstanding employment tax
liabilities for periods unrelated to those at issue. Ms. Fouche
hired Mr. Beg to negotiate with the Internal Revenue Service
(IRS) a reduction in the unrelated outstanding employment tax
liabilities of all the companies.
     5
        The power of attorney form is not part of the record, but
we assume it was a Form 2848, Power of Attorney and Declaration
of Representative.
                                - 4 -

delivered them to Ms. Fouche.   Ms. Fouche signed the returns on

petitioner’s behalf.   The returns the payroll company prepared

did not claim advance earned income credit (EIC) payments made to

employees, and the parties agree that the returns prepared by the

payroll company and signed by Ms. Fouche were not false or

fraudulent.

     As part of Mr. Beg’s scheme he convinced Ms. Fouche that he

had reached an agreement with the IRS that would allow her to pay

off petitioner’s unrelated employment tax liabilities, and as a

result he needed to deliver petitioner’s returns, as they came

due, and certified checks made out to the IRS to the revenue

officer with whom he was negotiating.   As requested Ms. Fouche

gave Mr. Beg the returns for the original periods that the

payroll company had prepared and she had signed, as well as

certified checks made out to the IRS in the amounts of

petitioner’s employment tax liabilities determined by the payroll

company, so that he could deliver them to the revenue officer.

     Mr. Beg never gave the revenue officer the checks Ms. Fouche

had made out to the IRS or the Forms 941 for the original covered

periods that the payroll company had prepared and Ms. Fouche had

signed.   Instead, Mr. Beg altered the checks Ms. Fouche had made

payable to the IRS by changing the payee to Himalayan Hanoi

Craft, the name on a bank account Mr. Beg held at Habib American
                               - 5 -

Bank (Himalayan account),6 and cashed or deposited the checks for

his own use.   Then, to cover up his embezzlement, Mr. Beg

prepared, signed, and filed different Forms 941 for the original

covered periods on which he falsely claimed that petitioner had

made advance EIC payments to employees.7   The claimed advance EIC

payments made to employees reduced petitioner’s employment tax

liability for each period, and Mr. Beg paid the IRS the reduced

amounts using checks from his Himalayan account.8   During the



     6
        Ms. Fouche had no knowledge of Mr. Beg’s Himalayan
account.
     7
        Mr. Beg claimed false advance EIC payments made to
employees on petitioner’s Forms 941 for the original covered
periods in the following amounts: $40,539 for the period ending
Mar. 31, 1999 (received by the IRS on Apr. 30, 1999); $45,388 for
the period ending June 30, 1999 (received on Dec. 21, 1999);
$85,927 for the period ending Dec. 31, 1999 (received on Jan. 31,
2000); $53,082 for the period ending Mar. 31, 2000 (received on
May 19, 2000); and $55,656 for the period ending June 30, 2000
(received on Aug. 28, 2000).
     8
        For example, petitioner’s Form 941 for the period ending
Mar. 31, 1999, as prepared by the payroll company, reported that
petitioner owed $46,501.33 in employment tax for that quarter.
Petitioner issued the IRS a certified check for that amount and
gave the Form 941 and check to Mr. Beg. The return that Mr. Beg
prepared and filed for the period ending Mar. 31, 1999, reported
that petitioner had made advance EIC payments of $40,539 during
the quarter and showed a total balance due of $5,962.33 (i.e.,
petitioner’s correct tax liability of $46,501.33 - Mr. Beg’s
falsely claimed advance EIC payments of $40,539). Mr. Beg issued
a check to the IRS for $5,962.33 and altered the certified check
petitioner had given him by changing the payee from the IRS to
Himalayan Hanoi Craft. The results are similar for the other
original covered periods, although the account transcripts for
those periods do not show that Mr. Beg paid the IRS the exact
amount of the remaining reduced liability, as he did for the
period ending Mar. 31, 1999.
                                   - 6 -

course of his scheme Mr. Beg converted more than $280,000 of

petitioner’s intended payments to the IRS into his own funds by

altering the checks petitioner had made out to the IRS.

       The parties agree that the Forms 941 Mr. Beg prepared for

the original covered periods are false or fraudulent returns

within the meaning of section 6501(c)(1).9      Respondent does not

allege that Ms. Fouche, petitioner, or the payroll company

intended to evade tax or willfully attempted to defeat or evade

tax.       Respondent does allege, however, that Mr. Beg intended to

evade tax within the meaning of section 6501(c)(1) and/or

willfully attempted to defeat or evade taxes within the meaning

of section 6501(c)(2)10 when he filed fraudulent Forms 941 for

the original covered periods.       Petitioner disagrees.

       B.      Mr. Beg Filed Amended Forms 941 for the Periods Ending
               June 30, 1997, and December 31, 1998

       The payroll company prepared petitioner’s Forms 941 for the

periods ending June 30, 1997, and December 31, 1998, and Ms.


       9
        Generally the Commissioner must assess a tax within 3
years after the return is filed. Sec. 6501(a). An exception to
the general rule is found in sec. 6501(c)(1): “In the case of a
false or fraudulent return with the intent to evade tax, the tax
may be assessed, or a proceeding in court for collection of such
tax may be begun without assessment, at any time.”
       10
        Sec. 6501(c)(2) provides: “In case of a willful attempt
in any manner to defeat or evade tax imposed by this title (other
than tax imposed by subtitle A or B), the tax may be assessed, or
a proceeding in court for the collection of such tax may be begun
without assessment, at any time.” While sec. 6501(c)(1) applies
to any tax imposed under the Code, sec. 6501(c)(2) applies only
to employment and excise taxes.
                                - 7 -

Fouche filed them, without including payments of the balances

due, on July 31, 1997, and January 31, 1999, respectively.11    The

returns the payroll company prepared did not claim advance EIC

payments made to employees, and the parties agree that these

returns were not false or fraudulent.

     Unbeknownst to Ms. Fouche, Mr. Beg prepared, signed, and

filed amended Forms 941 for the periods ending June 30, 1997, and

December 31, 1998.   On the amended return for the period ending

December 31, 1998,12 Mr. Beg claimed false advance EIC payments

made to employees of $48,812.   The IRS applied a refundable

credit to petitioner’s account in the amount of the false advance

EIC payments, and this reduced its December 31, 1998, employment

tax liability to $19,654.   Petitioner’s account transcript shows

that shortly after Mr. Beg filed the amended return two payments

totaling $11,635 were made, at least one of which the record

shows was in the form of a check from Mr. Beg’s Himalayan

account.   The IRS applied overpayment credits from petitioner’s




     11
        Respondent assessed tax of $54,374.31 for the period
ending June 30, 1997, and tax of $68,375.62 for the period ending
Dec. 31, 1998.
     12
        Mr. Beg filed the amended return for the period ending
Dec. 31, 1998, before filing the amended return for the period
ending June 30, 1997.
                               - 8 -

periods unrelated to those at issue to cover the remainder of the

December 31, 1998, period’s balance.13

     On the amended return for the period ending June 30, 1997,

Mr. Beg claimed false advance EIC payments made to employees of

$45,091.   The false advance EIC payments reduced petitioner’s

balance due for the period from $54,374 to $9,283, and Mr. Beg

paid the reduced balance by check from his Himalayan account.14

     It is not clear whether or how Mr. Beg benefited from the

filing of the amended returns or whether he filed the amended

returns with the intention of covering up the fraudulent returns

that he had previously filed for the periods ending March 31,

June 30, and December 31, 1999.15

Mr. Beg’s Criminal Case

     On June 10, 2002, the United States filed a complaint

against Mr. Beg alleging, among other crimes, that he:   (1)

Knowingly and intentionally made, uttered, and possessed forged

securities of petitioner and the other bus companies in violation



     13
        The IRS later received from petitioner the full amount
of its Dec. 31, 1998, employment tax liability.
     14
        The IRS later received from petitioner the full amount
of its June 30, 1997, employment tax liability.
     15
        Mr. Beg filed the amended return for the period ending
Dec. 31, 1998, after he had filed the fraudulent return for the
period ending Mar. 31, 1999, and he filed the amended return for
the period ending June 30, 1997, after he had filed the
fraudulent returns for the periods ending June 30 and Dec. 31,
1999.
                                - 9 -

of 18 U.S.C. sec. 513(a); (2) knowingly deposited into his

Himalayan account approximately $349,865 derived from the making

and possessing of forged securities of petitioner and the other

bus companies in violation of 18 U.S.C. sec. 1957(a) and (b)(1)

(money laundering); (3) signed false tax returns in violation of

section 7206(1); and (4) prepared and presented false tax returns

in violation of section 7206(2).16      In the complaint the United

States, by sworn statement of a special agent of respondent’s

Criminal Investigation Division, alleged that Mr. Beg:      (1)

Knowingly and willfully prepared and subscribed to false Forms

941 in petitioner’s name; (2) fraudulently claimed that

petitioner’s employees had received advance EIC payments; (3)

forged checks drawn on petitioner’s account; and (4) received

from Ms. Fouche checks made payable to the IRS, which he later

altered to appear as if they were made payable to Himalayan Hanoi

Craft.    Ms. Fouche had no knowledge of Mr. Beg’s criminal

activity before his arrest.

     On October 8, 2002, Mr. Beg pleaded guilty to charges of

money laundering, knowingly and willfully signing false tax

returns, and knowingly and willfully preparing and presenting

false tax returns.   In 2006 he passed away before being sentenced

for his crimes.


     16
        The violation of sec. 7206(2) relates to Mr. Beg’s
fraudulent preparation of Forms 1040, U.S. Individual Income Tax
Return, for taxpayers unrelated to petitioner.
                                 - 10 -

Petitioner’s Civil Examination

     On or about May 28, 2004, respondent, on the basis of the

guilty plea entered in Mr. Beg’s criminal trial, commenced a

civil examination of petitioner’s Forms 941 for the periods at

issue.    The examination concerned the recovery of petitioner’s

employment taxes that respondent had failed to collect because of

Mr. Beg’s filing of the fraudulent Forms 941.     On November 28,

2006, Laurie Greenberg (Ms. Greenberg), a certified public

accountant representing petitioner during the examination, signed

Forms 2504, Agreement to Assessment and Collection of Additional

Tax and Acceptance of Overassessment, consenting to the

assessment and collection of additional employment taxes for the

periods at issue.17     Pursuant to the signed Forms 2504,

respondent assessed additional taxes as follows:

       Taxable
    Period Ending           Additional Tax     Assessment Date

    June   30,   1997          $42,211          Feb.   26,   2007
    Dec.   31,   1998           48,812          Mar.   12,   2007
    Mar.   31,   1999           40,539          Feb.   26,   2007
    June   30,   1999           45,388          Feb.   26,   2007
    Dec.   31,   1999           85,927          Feb.   26,   2007
    Mar.   31,   2000           53,082          Feb.   26,   2007
    June   30,   2000           55,656          Feb.   26,   2007




     17
         By Aug. 28, 2003, the 3-year period of limitations on
assessment and collection under sec. 6501(a) had expired for all
periods at issue. Thus, Ms. Greenberg signed the Forms 2504 more
than 3 years after the limitations periods under sec. 6501(a) had
expired.
                                - 11 -

Respondent did not determine a fraud penalty pursuant to section

6663 against petitioner.    The parties agree that respondent

assessed the additional employment taxes for the periods at issue

more than 3 years after Mr. Beg filed petitioner’s Forms 941.

Petitioner’s Challenge to the Timeliness of the Assessments

     On or about September 11, 2007, Ms. Greenberg informed

respondent that petitioner believed the assessments were made

outside the limitations periods.    In early January 2008

respondent mailed to petitioner a Final Notice of Intent to Levy

and Notice of Your Right to a Hearing concerning petitioner’s

unpaid additional tax.     On January 15, 2008, respondent received

petitioner’s Form 12153, Request for a Collection Due Process

Hearing (CDP request).     Petitioner alleged the following in its

CDP request:    “The IRS relied on the fraud penalty to assess the

taxes.    However, we eliminated not only the fraud penalty, but

all penalties.[18]   Therefore, the assessment should not stand.




     18
        Initially the IRS determined that petitioner was liable
for failure to timely file additions to tax under sec.
6651(a)(1), failure to timely pay additions to tax under sec.
6651(a)(2), failure to make deposit of taxes penalties under sec.
6656(a), and civil fraud penalties under sec. 6663. However,
after investigation the IRS concluded that petitioner’s reliance
on Mr. Beg to file the Forms 941 and pay the taxes owed
constituted reasonable cause, and therefore it was not liable for
the additions to tax and failure to deposit penalties. The IRS
also concluded that neither petitioner nor Ms. Fouche had had any
role in the claiming of the false advance EICs, and therefore the
civil fraud penalties should not be determined against
petitioner.
                               - 12 -

They assessed over 7 years after the return was filed.     The

statute was only for 3 years.”

     On May 27, 2008, Ms. Greenberg met with Gerard Ohrtman (Mr.

Ohrtman), a settlement officer with the IRS Appeals Office

(Appeals), to discuss the assessments against petitioner and the

issue petitioner raised in the CDP request.     Mr. Ohrtman

explained that in his opinion the assessments were valid.       On

December 11, 2008, Appeals issued petitioner a notice of

determination sustaining the proposed levy.     Petitioner then

filed a petition with the Court.

                             Discussion

I.   Standard of Review

     Section 6330(a) provides that no levy may be made on any

property of a taxpayer unless the Secretary has first notified

the taxpayer in writing of his right to a hearing.     If the

taxpayer properly requests a hearing under section 6330(a), the

taxpayer is entitled to a hearing before an impartial Officer of

Appeals (CDP hearing).    Sec. 6330(b).   At the CDP hearing the

taxpayer may challenge the underlying tax liability only if the

taxpayer did not receive a statutory notice of deficiency or

otherwise have a prior opportunity to dispute the tax liability.

Sec. 6330(c)(2)(B).   A taxpayer’s claim that the Commissioner is

time barred from collecting its Federal tax liability constitutes

a challenge to the underlying tax liability.     Boyd v.
                                - 13 -

Commissioner, 117 T.C. 127, 130 (2001).     This Court has

jurisdiction to review Appeals’ determination under sec.

6330(d)(1).     Where the taxpayer’s underlying liability was

properly at issue, we review Appeals’ determination de novo.

Sego v. Commissioner, 114 T.C. 604, 610 (2000).

      Because petitioner did not receive a statutory notice of

deficiency or otherwise have a prior opportunity to dispute the

tax liabilities,19 the underlying tax liabilities were properly

at issue at the CDP hearing.     Accordingly, we will review

Appeals’ determination that the statute of limitations remained

open de novo.

II.   Statute of Limitations

      The Commissioner generally must assess any tax imposed by

the Code within a 3-year period after a taxpayer files his or her

return.    Sec. 6501(a).   One exception to this general rule

exists, however, for the filing of a false or fraudulent return

with the intent to evade tax.     Sec. 6501(c)(1).20   Another

exception exists for a willful attempt in any manner to defeat or




      19
        Respondent does not argue, and nothing in the record
indicates, that petitioner had the opportunity to challenge its
employment tax liabilities at any time during respondent’s
examination of petitioner’s Forms 941 or before Ms. Greenberg’s
signing the Forms 2504.
      20
           See supra note 9.
                                   - 14 -

evade tax.21    Sec. 6501(c)(2).    In either of those situations the

Commissioner may assess the tax, or commence a proceeding in

court for the collection of the tax, at any time.      Sec. 6501(c).

In Allen v. Commissioner, 128 T.C. 37 (2007), we held that, for

purposes of section 6501(c)(1), the limitations period remains

open indefinitely regardless of whether it was the taxpayer or

the taxpayer’s tax return preparer who had the intent to evade

tax.    Section 6501(c)(2), however, was not at issue in Allen.

       Respondent, relying on Allen, argues that the limitations

periods remain open for the original covered periods because

petitioner’s returns filed for those periods were false or

fraudulent with the intent to evade tax, even though it was Mr.

Beg, not Ms. Fouche, petitioner, or the payroll company, whom

respondent argues had the intent to evade tax.      Respondent also

argues that the limitations periods remain open for the original

covered periods because Mr. Beg willfully attempted to defeat or

evade tax.     In this regard respondent asks us to conclude that

section 6501(c)(2) extends the limitations period for a willful

attempt to evade tax in any manner, even though it may not be the

taxpayer who makes the willful attempt.      Respondent relies

exclusively on section 6501(c)(2) to keep open the limitations

periods for the periods ending June 30, 1997, and December 31,

1998.


       21
            See supra note 10.
                               - 15 -

       Petitioner argues that respondent has not proved by clear

and convincing evidence that Mr. Beg intended to evade tax or

willfully attempted to defeat or evade tax for any of the periods

at issue.22   Therefore, according to petitioner, respondent

cannot rely on section 6501(c)(1) or (2) and respondent is time

barred from assessing and collecting the employment taxes for the

periods at issue.

III.    Whether Respondent Proved by Clear and Convincing Evidence
        That Mr. Beg Intended To Evade Tax or Willfully Attempted
        To Defeat or Evade Tax for Any of the Periods at Issue

       To keep open the limitations periods under section

6501(c)(1) or (2), respondent must show, by clear and convincing

evidence, that Mr. Beg intended to evade tax or willfully

attempted to defeat or evade tax, respectively, when he filed

petitioner’s false Forms 941 for the periods at issue.      Secs.

7454(a), 6501(c)(1) and (2); Rule 142(b).    The burden of proving

fraud remains on respondent despite the parties’ decision to

submit this case fully stipulated under Rule 122.    See Rule

122(b); Borchers v. Commissioner, 95 T.C. 82, 91 (1990), affd.

943 F.2d 22 (8th Cir. 1991).



       22
        Petitioner also argues that respondent cannot rely on
sec. 6501(c)(1) or (2) to extend the limitations periods because
Allen v. Commissioner, 128 T.C. 37 (2007), is not controlling and
neither petitioner nor the payroll company intended to evade tax
or willfully attempted to defeat or evade tax. Thus, petitioner
argues that the 3-year limitations period of sec. 6501(a)
controls and respondent is time barred from assessing and
collecting the employment taxes for the periods at issue.
                               - 16 -

       To prove fraudulent intent, respondent must show by clear

and convincing evidence that Mr. Beg had the specific intent to

evade taxes known to be owing by conduct intended to conceal,

mislead, or otherwise prevent the collection of taxes.      Allen v.

Commissioner, supra; Parks v. Commissioner, 94 T.C. 654, 662

(1990); McGee v. Commissioner, 61 T.C. 249, 256 (1973), affd. 519

F.2d 1121 (5th Cir. 1975); Christians v. Commissioner, T.C. Memo.

2003-130.    Although the Court has not expounded on what

constitutes a willful attempt to defeat or evade tax under

section 6501(c)(2), we have said that there is little “meaningful

distinction between [a] ‘false or fraudulent return with the

intent to evade tax’ and [a] willful attempt in any manner to

defeat or evade tax.’”    Carl v. Commissioner, T.C. Memo. 1981-

202.    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).

       Respondent argues that the record clearly and convincingly

shows that Mr. Beg intended to evade tax and/or willfully

attempted to defeat or evade employment taxes for all of the

periods at issue.    Specifically, respondent points out that Mr.

Beg filed fraudulent Forms 941 and amended Forms 941, pleaded

guilty to violating section 7206(1), and had the knowledge and
                              - 17 -

experience to know that his actions would result in the evasion

of petitioner’s employment taxes.23

     Petitioner counters that the stipulated facts and

incorporated exhibits show that Mr. Beg intended to embezzle from

petitioner and that he filed the Forms 941 and amended Forms 941

solely to cover up his embezzlement, not to defeat or evade

petitioner’s employment taxes.   Therefore, according to

petitioner, the record does not show by clear and convincing

evidence that Mr. Beg had the specific intent to evade tax or

willfully attempted to defeat or evade tax, and respondent has

failed to carry his burden of proof.

     On the record before us, we do not find that respondent has

proved by clear and convincing evidence that Mr. Beg had the

specific intent to evade tax or willfully attempted to defeat or

evade tax when he filed false Forms 941 and amended Forms 941 for

the periods at issue.   Respondent points to a number of egregious


     23
        Courts have developed a nonexclusive list of factors or
“badges of fraud” that demonstrate fraudulent intent.
Niedringhaus v. Commissioner, 99 T.C. 202, 211 (1992). These
badges of fraud include: (1) Understatement of income; (2)
inadequate records; (3) implausible or inconsistent explanations
of behavior; (4) concealment of income or assets; (5) failure to
cooperate with tax authorities; (6) filing false documents; (7)
failure to make estimated tax payments; (8) dealing in cash; (9)
engaging in illegal activities; and (10) engaging in a pattern of
behavior that indicates an intent to mislead. Vogt v.
Commissioner, T.C. Memo. 2007-209, affd. 336 Fed. Appx. 758 (9th
Cir. 2009). No single factor is necessarily sufficient to
establish fraud; however, a combination of several of these
factors may constitute persuasive evidence of fraud.
Niedringhaus v. Commissioner, supra at 211.
                               - 18 -

acts Mr. Beg performed that led to the IRS’ failing to collect

the full amount of petitioner’s employment taxes.   However, we

cannot say that respondent has proved by clear and convincing

evidence that Mr. Beg’s filing of the Forms 941 and amended Forms

941 shows conduct intended to defeat or evade petitioner’s taxes

and not an incidental consequence or secondary effect of his

embezzlement scheme.   Petitioner argues that Mr. Beg intended

only to cover up his embezzlement scheme and not defeat or evade

petitioner’s taxes.    Respondent cannot point to anything in the

record that leads us to believe petitioner’s argument is

meritless.   Additionally, while respondent argues that Mr. Beg’s

conviction under section 7206(1) shows that he intended to evade

tax, we note that a conviction under section 7206(1) is a factor

to be considered and is not dispositive.   See Wright v.

Commissioner, 84 T.C. 636 (1985); Wickersham v. Commissioner,

T.C. Memo. 1999-276.    This is because the intent to evade tax is

not an element of the crime charged under section 7206(1).   See

Wright v. Commissioner, supra at 641, 643.

     Accordingly, we find that respondent has not proved by clear

and convincing evidence that Mr. Beg intended to evade tax or

willfully attempted to defeat or evade tax for the periods at

issue.
                              - 19 -

IV.   Conclusion

      Because respondent did not show by clear and convincing

evidence that Mr. Beg filed fraudulent returns with the intent to

evade tax or willfully attempted to defeat or evade tax, the

limitations periods for assessment are not extended under either

section 6501(c)(1) or (2).   Thus, the 3-year limitations period

of section 6501(a) controls the timeliness of respondent’s

assessments of petitioner’s additional taxes.   Respondent

concedes that the assessments of petitioner’s additional taxes

occurred more than 3 years after Mr. Beg filed petitioner’s

returns.   Accordingly, respondent is time barred from assessing

the additional tax for all periods at issue, and Appeals erred as

a matter of law in determining that collection activity should

proceed to collect petitioner’s additional tax for the periods at

issue.

      We have considered all arguments made by the parties, and to

the extent not discussed above, we conclude that those arguments

are irrelevant, moot, or without merit.

      To reflect the foregoing,


                                          Decision will be entered

                                    for petitioner.
