                        T.C. Memo. 2002-163



                      UNITED STATES TAX COURT



                   FRANK GEORGE, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 6604-01.                Filed June 27, 2002.



     Frank George, pro se.

     Anne W. Durning, for respondent.



                        MEMORANDUM OPINION


     COHEN, Judge:   Respondent determined deficiencies of $66,470

and $90,777 in petitioner’s Federal income taxes for 1996 and

1997, respectively, and determined penalties under section 6662

of $13,294 and $18,155 for those years, respectively.    The issues

for decision are whether petitioner had unreported income for

services rendered as an osteopathic physician or as a homeopathic
                               - 2 -

physician, whether the Court has jurisdiction to make that

determination where the income was reported by a limited

liability company (LLC) that filed a petition in bankruptcy

subsequent to the years in issue, and whether a penalty under

section 6673 should be awarded to the United States.   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.

                            Background

     Some of the facts have been stipulated, and the stipulated

facts are incorporated in these findings by this reference.

Petitioner resided in Arizona at the time that he filed his

petition.   His income tax liability for 1993 and 1994 was the

subject of litigation in this Court that was decided in a

Memorandum Opinion of this Court, George v. Commissioner, T.C.

Memo. 1999-381.

     In June 1993, petitioner and Jimmy C. Chisum (Chisum) formed

Arivada Health Enterprises Trust (Arivada).   Petitioner

transferred his osteopathic medical practice, which he formerly

operated as a sole proprietorship, to Arivada when it was formed.

The operations of Arivada in 1996 and 1997 were not significantly

different from the operations for 1993 and 1994.   During 1996 and

1997, Arivada paid the personal expenses of petitioner for his

home and automobile.
                                 - 3 -

     Using funds from Arivada’s account in the amount of

$31,198.16, petitioner purchased a home on Ludlow Drive in

Scottsdale, Arizona.   Petitioner purchased the home in the name

of the woman with whom he was then romantically involved to avoid

holding property that would be subject to the claims of his

creditors, including the Internal Revenue Service (IRS).

     Holistic Osteopathic Medical Care, PLLC (HOMC), was formed

on June 7, 1994, as a professional limited liability company

under Arizona law.    HOMC was a member-managed LLC, and petitioner

was the manager.   Petitioner was the sole patient care provider

for HOMC during 1996 and 1997.    During 1996 and 1997, the gross

receipts for petitioner’s medical practice were deposited into

accounts in the name of HOMC.

     HOMC filed partnership income tax returns, Form 1065, U.S.

Partnership Return of Income, for each of the years 1994 through

1997.   On Forms K-1, Partner’s Share of Income, Credits,

Deductions, etc., attached to HOMC’s returns for 1996 and 1997,

petitioner was reported as a partner with a 10-percent ownership

interest and Arivada was reported as a partner with a 90-percent

ownership interest.

     For reasons set forth in T.C. Memo. 1999-381, Arivada is not

a trust recognized for Federal income tax purposes.   The purpose

for the transfer of property to the trust was tax avoidance, and
                               - 4 -

money paid to the trust for petitioner’s services is taxable

income to petitioner.

     During 1998, the IRS commenced an examination of

petitioner’s returns for the years in issue.   The revenue agent

reviewed petitioner’s returns, Arivada’s returns, HOMC’s returns,

correspondence from petitioner to various other employees of the

IRS, documents at the Arizona Corporation Commission and the

recorder’s office, records for bank accounts, and checks signed

by petitioner.   The revenue agent issued summonses for bank

account records and analyzed them, concluding that the deposits

shown were similar to the amounts reported on the HOMC returns.

Petitioner did not provide any documents during the examination

and did not meet with the revenue agent who had audited his

account until December 6, 2001, less than 2 months before trial

of this case.

     Petitioner filed a chapter 13 bankruptcy petition with the

U.S. Bankruptcy Court for the District of Arizona on October 19,

1998.   On October 21, 1998, the bankruptcy court lifted the stay

so that litigation in petitioner’s case for 1993 and 1994 could

proceed.   The notice of deficiency in this case was sent to

petitioner on July 3, 2000.   Petitioner’s chapter 13 bankruptcy

case was dismissed on December 26, 2000.

     Arivada filed a bankruptcy petition on or about October 22,

1998.   Arivada’s bankruptcy case was dismissed on November 23,
                               - 5 -

1998, by reason of Arivada’s failure to file a timely list of

creditors in the proper format and failure to file timely the

schedules and statements required by the bankruptcy rules.

     The notice of deficiency sent to petitioner, after a

detailed explanation, concluded in part:

          In this case, the business operation was not
     altered by the formation of trust; and subsequently, a
     limited liability partnership with the trust as
     partner. Before, the business was operated as a sole
     proprietor; after, the individual was a partner with a
     minimal interest. The majority of the distributions
     were allocated to the trust partner, who then
     “distributed” income to two foreign beneficiaries.

          The taxpayer has failed to substantiate that a
     valid trust was created. In any event, the trust and
     partnership arrangement should be disregarded for
     Federal Income Tax purposes because it lacks economic
     substance. As a result, the income and expenses for
     the partnership are attributable to the individual
     partner.

          As the partner, Arivada, has been determined to be
     established primarily for tax avoidance and determined
     to be a sham, the income will be distributed 100% to
     partner, George. However, to protect the interest of
     the government, an inconsistent position will be taken
     and income distributed 100% to partner, Arivada, also.

          Due to the filing of the bankruptcy, all
     adjustments will become nonpartnership items, and
     adjustments made with non-TEFRA [Tax Equity & Fiscal
     Responsibility Act of 1982, Pub. L. 97-248, 96 Stat.
     324 (TEFRA)] procedures.

The statutory notice included explanations of the penalties and

other adjustments that have now been conceded by respondent or

not contested by petitioner.
                               - 6 -

                            Discussion

     Petitioner has not pointed to any specific items of income

or deductions that were not correctly determined by respondent,

and he has not shown that respondent’s determination is erroneous

as to any fact set forth in the statutory notice.   Except to the

extent that concessions have been made, the record fully supports

respondent’s determination that income reported by HOMC or

allegedly belonging to Arivada is attributable to the services

provided by petitioner during the years in issue and, thus, is

taxable to him.   The record also supports respondent’s

determination of the penalties under section 6662, for the

reasons stated in the opinion in T.C. Memo. 1999-381.     In view of

petitioner’s failure to address these issues, we need not repeat

our discussion and resolution of the same issues addressed in the

opinion in T.C. Memo. 1999-381.

     Petitioner has relied on a variety of procedural arguments.

At the time of trial, petitioner filed various motions

substantially identical to those filed by other taxpayers whose

cases were calendared for trial at the same time.   See Ruocco v.

Commissioner, T.C. Memo. 2002-91.   He filed a Motion to Continue

that, without any factual foundation, asserted:   “Any other case,

in which the government prejudices are not present, would not

have been calendared for more than a year after the Answer was

filed.”   Obviously, petitioner is not familiar with the current
                               - 7 -

state of the Court’s docket.   Cases are calendared for trial on

the next calendar set after the Answer is filed.   See Rule 131.

     Among the motions filed on January 28, 2002, was a Motion in

Limine in which petitioner argued that the Court lacked

jurisdiction in this case because the HOMC was subject to TEFRA

proceedings under section 6231(a)(1)(B)(i).   Attached to that

motion was a copy of the order dismissing Arivada’s bankruptcy

petition.   In petitioner’s posttrial briefs filed in this case,

he argues that dismissal of the bankruptcy proceeding should have

the same effect as if the proceeding had never occurred.

     Respondent relies on the following provision of section

301.6231(c)-7T(a), Temporary Proced. & Admin. Regs., 52 Fed. Reg.

6793 (Mar. 5, 1987):

          (a) Bankruptcy. The treatment of items as
     partnership items with respect to a partner named as a
     debtor in a bankruptcy proceeding will interfere with
     the effective and efficient enforcement of the internal
     revenue laws. Accordingly, partnership items of such a
     partner arising in any partnership taxable year ending
     on or before the last day of the latest taxable year of
     the partner with respect to which the United States
     could file a claim for income tax due in the bankruptcy
     proceeding shall be treated as nonpartnership items as
     of the date the petition naming the partner as debtor
     is filed in bankruptcy.

The regulation was adopted under section 6231(c), giving the IRS

the authority to determine that certain items that would

otherwise be treated as partnership items may be treated as

nonpartnership items.   See Computer Programs Lambda, Ltd. v.

Commissioner, 89 T.C. 198, 204 (1987); Fein v. Commissioner, T.C.
                               - 8 -

Memo. 1994-370.   Relying on these authorities, respondent argues

that any partnership items of either petitioner or Arivada with

regard to HOMC for 1996 and 1997 were converted as of the time

the bankruptcy petitions were filed in 1998 to nonpartnership

items subject to the deficiency procedures used in this case.       We

agree with respondent.

     Petitioner has cited neither reason nor authority for his

proposition that filing of the bankruptcy petitions should be

disregarded because Arivada’s bankruptcy case was dismissed

before the notice of deficiency was sent.     He achieved a stay in

his earlier case that was lifted by the bankruptcy court so that

the Tax Court case could be resolved.     His case was dismissed

after the notice of deficiency was sent to him.     We agree with

respondent that petitioner’s argument lacks merit and that the

notice of deficiency properly included what otherwise might have

been regarded as partnership items.     Thus, the Court has

jurisdiction over those items in this case.

     The parties prepared a stipulation as required by Rule 91

and by the Standing Pre-Trial Order served with the notice of

trial.   In the stipulation, petitioner objected on Fifth

Amendment grounds to facts set forth in the stipulation that were

not reasonably subject to dispute.     Many of the documents

attached to the stipulation were third-party documents, such as

bank records.   Petitioner claims that the Court was required to
                               - 9 -

conduct an in camera investigation before rejecting his Fifth

Amendment claim.   Petitioner declined to testify at trial, and

the Court did not order him to testify.   Because this is neither

a criminal proceeding nor a contempt proceeding and no direct

sanction was imposed against petitioner as a result of his

refusal to testify, the cases on which he relies are not in

point.   See, e.g., United States v. Drollinger, 80 F.3d 389, 392

(9th Cir. 1996); United States v. Bodwell, 66 F.3d 1000, 1001

(9th Cir. 1995); United States v. Neff, 615 F.2d 1235, 1240 (9th

Cir. 1980); United States v. Pierce, 561 F.2d 735, 741 (9th Cir.

1977).

     The documentary and testimonial evidence presented by

respondent satisfied respondent’s burden to connect petitioner to

the income determined in the statutory notice.   See Johnston v.

Commissioner, T.C. Memo. 2000-315 (and cases cited therein).      He

did not present credible evidence that would affect the burden of

proof under section 7491(a).   In addition, the evidence presented

by respondent satisfied respondent’s burden of production with

respect to the penalties.   See sec. 7491(c); Higbee v.

Commissioner, 116 T.C. 438, 446-449 (2001).   The burden is on

petitioner to prove that respondent’s determinations are

erroneous.   He cannot avoid that burden by claiming the Fifth

Amendment privilege and attempting to convert “the shield * * *

which it was intended to be into a sword”.    United States v.
                              - 10 -

Rylander, 460 U.S. 752, 758 (1983); see Steinbrecher v.

Commissioner, 712 F.2d 195, 198 (5th Cir. 1983), affg. T.C. Memo.

1983-12; McCoy v. Commissioner, 696 F.2d 1234 (9th Cir. 1983),

affg. 76 T.C. 1027 (1981); Edwards v. Commissioner, 680 F.2d 1268

(9th Cir. 1982), affg. an unreported decision of this Court;

United States v. Carlson, 617 F.2d 518, 523 (9th Cir. 1980).      In

the terms of the U.S. Supreme Court, a taxpayer may not “draw a

conjurer’s circle around the whole matter” of his tax liability.

United States v. Sullivan, 274 U.S. 259, 264 (1927).   The Court

need not rule on petitioner’s claim in the context of this case,

although it may have been perceived as frivolous.   See Johnson v.

Commissioner, 289 F.3d 452 (7th Cir. 2002), affg. 116 T.C. 111

(2001) (assertion of Fifth Amendment privilege, inconsistent with

a taxpayer’s need to satisfy his burden of proof, might lead to

sanctions).

     The purpose of petitioner’s various arguments is apparently

to delay further or defeat satisfaction of his income tax

liabilities.   His demand for an in camera inspection was a

dilatory tactic.   He certainly did not want the trial judge to

hear his theory about how evidence might have been used against

him in a subsequent criminal proceeding.   Presumably, he would

have sought a continuance so that a different judge would conduct

the trial in this case.   In any event, he sought continuance of

the case and removal of the trial judge on spurious grounds.   See
                              - 11 -

Ruocco v. Commissioner, T.C. Memo. 2002-91.   He was warned at the

calendar call and he had been warned by prior cases, including

his own, concerning his misguided arguments and that he could

expect to have a penalty under section 6673 awarded against him.

     In his answers to interrogatories in this case, petitioner

asserted that documents and information needed to respond to

specific questions were in the hands of Chisum and John P. Wilde

(Wilde).   (He also stated that Eileen Lipari was responsible for

the preparation of HOMC’s 1997 Federal income tax return.    See

Lipari v. Commissioner, T.C. Memo. 2000-280.)   In his prior case

and during the years in issue, petitioner claims to have relied

on Chisum.   Chisum and Wilde are well known to the Court for the

multiple cases in which they have appeared in one form or

another, and they have been notably unsuccessful.   See, e.g.,

Johnston v. Commissioner, supra; Quantum Invs., L.L.C. v.

Commissioner, T.C. Memo. 2000-247 (n.5); Renaissance Enters.

Trust v. Commissioner, T.C. Memo. 2000-226; Banana Moon Trust v.

Commissioner, T.C. Memo. 2000-73; Jeff Burger Prods., LLC v.

Commissioner, T.C. Memo. 2000-72; Bantam Domestic Trust v.

Commissioner, T.C. Memo. 2000-63.   The Court’s records indicate

approximately 30 cases in which petitions were filed by Wilde as

either an alleged trustee or as the alleged tax matters partner

of an LLC and were ultimately dismissed by reason of Wilde’s

failure to show his authority to proceed or for other failures.
                              - 12 -

Petitioner’s filings in this case, including the briefs, bear all

of the earmarks of style and content of documents filed by Wilde.

     Petitioner is one of a group of people who pursue groundless

arguments solely for the purpose of delay.   By their procedural

gimmicks, petitioner and his advisers seek to create a circular

dilemma for respondent.   They institute TEFRA proceedings that

are duly dismissed, and then they assert the absence of a TEFRA

proceeding in an attempt to block the individual deficiency case.

The inevitable conclusion is that the proceedings are maintained

for delay.   Petitioner and those with whom he is associated

obviously intend to clutter the Court’s docket with

nonmeritorious cases so that the scheduling of trials and

resolution of cases will be impeded.   Such conditions were among

those that led Congress in 1989 to increase the amount of the

penalty under section 6673 from $5,000 to $25,000.    See H. Rept.

101-247 (1989) to accompany the Omnibus Budget Reconciliation Act

of 1989, Pub. L. 101-239, 103 Stat. 2106, 2400-2401.   Penalties

have been awarded in comparable cases.   See Ward v. Commissioner,

T.C. Memo. 2002-147; Ruocco v. Commissioner, supra; Lipari v.

Commissioner, supra.   In this case, we conclude that a penalty

under section 6673 is appropriate in the amount of $20,000.

     To reflect the effect of respondent’s concessions,

                                         Decision will be entered

                                    under Rule 155.
